Top Mid-Cap Stock Picks Of Analysts For 2020

A handful of large caps drove India's benchmark indices to new highs even as the broader market continued to bleed for the second straight year. But analysts now expect the mid-cap peers to turn a corner this year.

The Nifty Midcap 100 Index declined 4.3 percent in 2019 compared with the Nifty 50 Index's 12 percent rally. Brokerage Spark Capital said 63 percent and 75 percent stocks in mid- and small-cap space, as defined by the market regulator, respectively, fell in the last two years. Brokerages including Jefferies and JM Financial expect a recovery, at least for select stocks.

Here are some of the top mid-cap picks of brokerages for 2020…

Jefferies

The main factors, according to the brokerage, that will influence mid caps in 2020 are government initiatives, shift towards organised segment, premium product launches, raw material costs and balance sheet strength.

HEG and Graphite India: Jefferies bets on the companies because of inexpensive valuations and strong balance sheet.

V-Guard Industries and Havells India: A diversified product mix and market leadership could help the two electrical appliances makers and has a ‘Buy' on both. Subdued demand and tight liquidity remain key concerns.

Finolex Industries: The pipe maker stands to benefit from the government's ‘Nal Se Jal' scheme aimed at providing piped water to all Indians.

Kajaria Ceramics: Medium-term triggers include market share gains, government impetus to housing, product mix and widening distribution remain robust. Extended rains, subdued construction activities, liquidity crunch and weak sentiment could weigh on earnings in the second half of the ongoing financial year.

UPL: The brokerage is bullish on the stock given its scale and product mix benefits from Arysta LifeScience's acquisition.

JM Financial

The brokerage picked 12 mid caps that showed “growth at reasonable price” and are “value stocks”. Macro recovery is critical for delivering earnings growth, the brokerage said.

Alembic Pharma: Its U.S. business could continue to surprise positively, and domestic revival is likely in FY21. The stock is now trading at a 25 percent discount to its five-year average. Valuations are compelling with the domestic formulations business about to turn the corner.

CanFin Homes: It has a superior loan book quality over peers. JM Financial expects its profit after tax to grow at an annualised rate of 27 percent during FY19-21.

Chalet Hotels: With its high-end hotels across key geographies, it is well placed to benefit from the imminent up-cycle in the industry.

Sundram Fasteners: Diversification into other auto categories, non-auto segment and exports will drive the company's growth.

VIP Industries: Enhanced product mix and focus on product designs over utility will aid growth.

B&K

The brokerage picked quality mid-cap stocks with earnings growth probability, valuations and longer horizon of growth.

CG Consumer Electricals: The company has made significant efforts in branding, premiumisation and product innovation which are driving growth under the new management. It's looking to increase its distribution reach by 50-60 percent.

PVR: The stock trades at 13.7 times its one-year forward EV/Ebitda, in line with the average for last two years. The valuations are expected to sustain, owing to industry tailwinds and earnings growth.

Spark Capital

The brokerage has picked more than 20 mid-cap stocks with a three-year view to include companies that can benefit from structural business changes and cyclical macro improvement. Spark Capital didn't provide one-year targets.

Ashok Leyland: Expects revenue growth to rebound in FY22 on the back of a revival in commercial vehicle cycle. Cash accruals to improve, led by a strong volume uptick in FY22, an improvement in Ebitda margin, better product mix and operating leverages.

Federal Bank: Ramp up in margin profile and sustenance of fee income on wholesale loans to aid growth. Fall in credit costs to drive will push return on assets.

KPIT Technologies: The company's growth is likely to be led by higher spend in automotive software by original equipment manufacturers.

Teamlease Services: The brokerage expects the company's earnings to be driven by driven by economies of scale and increased contribution of high-margin IT staffing and telecom staffing business to overall revenue. The revenue growth over the next three years will be driven by consolidation driven by GST, and increased flexi-staffing.

V-Mart Retail: The company's revenue es expected to more than double by FY23, making it among the biggest value retailers in the country virtually dominating the north, central and northeastern part of the country.