Following the robust rally, the outlook for good quality midcap stocks still remains bullish, analysts said.
In August 2023, the broader markets, midcap and smallcap, outperformed largecaps by notable margins. In the last one month, sector rotation was clearly visible in the market in which Media, IT, and Pharma indices delivered positive returns while Banks, Financial Services, Energy, commodities, and PSU Banking indices witnessed weakness.
“While the medium to long-term outlook for the overall market remains positive, we may see volatility in the short run with the market responding in either direction. Keeping this in view, the current setup is a ‘Buy on Dips’ market,” Axis Securities said in a report.
Among midcap stocks, the brokerage is bullish on stocks such as Lupin, Federal Bank, Ashok Leyland and Relaxo Footwears.
Check out Axis Securities’ top midcap stock picks:
Lupin | Buy | TP: ₹1,210
Lupin has received approval for the generic version of Spiriva HandiHaler. It also launched gDarunavir in Q1FY24 in the US market and received approval for Dolutegravir Lamivudine.
“We get more confidence in Lupin’s business due to the launch of these two new products where it has a first-mover advantage. We believe both these products would increase the company’s gross margins by 100 bps in the next two years,” Axis Securities said.
Lupin’s margins at 13% are still below the industry levels of 22%. The brokerage firm, therefore, foresees a significant scope for margin improvement in the upcoming quarters. It expects the macro environment to be in favour of the industry, led by a fall in raw material prices along with low logistics and fuel costs.
Federal Bank | Buy | TP: ₹160
Federal Bank’s key strengths continue to be sustained credit growth, strong liability franchise, improving fee income, improving Cost Ratios, and benign credit costs backed by robust asset quality metrics.
The brokerage maintained its ‘Buy’ rating on the stock with a target price of ₹160 per share (1.25x FY25E ABV).
However, key risks include loan growth moderation and asset quality challenges in the higher-yielding segment.
Also Read: ‘Mid-caps can become mad caps…’ Shankar Sharma’s witty reply to Porinju Veliyath on small, midcap rally
Ashok Leyland | Buy | TP: ₹210
Ashok Leyland remains well-positioned to benefit from a longish commercial vehicle (CV) upcycle. The brokerage remains positive on the long-term growth trajectory of the company with better margins led by operational efficiencies, material cost reduction program, softening of commodity costs, and pricing discipline, and expects 8% CAGR volume growth over FY23-26E.
It forecasts the company to post Revenue, EBITDA and PAT growth of 11%, 22% and 34% CAGR over FY23- FY26. It maintained its ‘Buy” rating on the stock with the target price at ₹210 per share, valuing the stock at 19x June 2025E EPS.
Also Read: Smallcap: Mahindra CIE, PNC Infratech among top picks by Axis Securities for up to 28% upside
Relaxo Footwears | Buy | TP: ₹1,050
Relaxo Footwears’ Q1FY24 result was strong and the management’s FY24 outlook gave confidence that the worst is behind the company as demand environment is likely to recover in FY24, especially in rural India, raw material prices are now stable, which will aid in gross margins expansion. The company is regaining its lost market share from unorganised players and is focusing on premiumisation by increasing the share of a fast-growing sports and athleisure category.
Additionally, the company is doubling its capacity of Sparx from the current 50,000 pairs/day to 100,000 pairs/day at Bhiwadi (Rajasthan), which the brokerage believes is a step in the right direction from the long-term perspective.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 05 Sep 2023, 01:52 PM IST