Midcap sale on Dalal Street: These 8 quality stocks have just turned cheaper
Rain Industries, Avanti Feed, Ajanta Pharma, Eros International, Gujarat Alkalies, GSFC, Muthooth Finance, MRPL and IRB Infra, which dipped anywhere between 33 per cent to 12 per cent in the last one month, are trading at attractive valuations now.
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TERRIBLE TUESDAY: Sensex cracks 1200 points, Nifty below 10,300 The recent rout in midcap and smallcap stocks led to up to 60 per cent fall in these counters, especially on the back of market regulator Sebi including some of them into the Additional Surveillance Mechanism (ASM) list. Another contributing factor was the restructuring of mutual fund schemes according to new Sebi norms, and even the rich valuations contributed to the recent losses.
The Nifty Midcap and Smallcap indices tanked up to 7 per cent in the last one month against Nifty's flat performance during the same period. Vakrangee (down 62 per cent), KSK Energy Ventures (down 58 per cent), Manpasand Beverages(down 54 per cent), IVRCL (down 52 per cent), and Arrow Greentech (down 44 per cent) were the leading losers among smallcap stocks.
"Midcaps have struggled over the last few months, resulting in their underperformance versus large-caps. Over the last 12 months, midcaps have delivered 8 per cent returns, as against 12 per cent by the Nifty. However, over the last five years, midcaps have outperformed the Nifty by 63 per cent," said brokerage Motilal Oswal Securities in a research note.
With this recent fall in midcap and smallcap stocks, experts believe this has given an opportunity to dip into quality stocks at lower levels as not all stocks that have suffered ASM sell-off are of bad quality. "Some of midcap and smallcap stocks witnessed hefty selling pressure due to Sebi's surveillance mechanism, but fundamentally, there is nothing wrong with these companies," said Vikas Sethi, MD, Sethi Finmart.
Sethi advised segregating the good and bad quality stocks to make money in quality midcap and smallcap counters in the next three to six months.
| Company | Returns (last one-month) | PE ratio |
|---|---|---|
| Rain Industries | -33% | 9.7x |
| Avanti Feed | -32% | 18.4x |
| Ajanta Pharma | -24% | 17.6x |
| Eros International | -20% | 5.6x |
| Gujarat Alkalies | -16% | 8.5x |
| GSFC | -15% | 9.5x |
| Muthooth Finance | -14% | 8.6x |
| MRPL | -13% | 4.6x |
| IRB Infra | -12% | 9.2x |
Going by data, Rain Industries, Avanti Feed, Ajanta Pharma, Eros International, Gujarat Alkalies, GSFC, Muthooth Finance, MRPL and IRB Infra, which dipped anywhere between 33 per cent to 12 per cent in the last one month, are trading at attractive valuations now. Besides, we have compiled a list of 8 stocks by two experts where decent returns could be earned.
Vikas Sethi, MD, Sethi Finmart
1) Tinplate Company of India
Target price: Rs 250
- Tata Group firm
- Metal shares are shining following robust Q4 numbers
- Valuations attractive
2) HIL
Target price: Rs 2700
- Market leader in roofing and building solutions
- Distribution network strong
- Good monsoon to build rural demand
- HIL financials are robust
3) Graphite India
Target price: Rs 1200
Well-known firm in electrode segment
The stock is available at cheap valuations
New contracts being signed at higher prices
4) Jamna Auto
Target price: Rs 150
- The company is into supplying auto components for commercial vehicles
- 9 manufacturing plants across country
- Big clients such as Ashok Leyland and M&M
Avinash Gorakssakar, HoR, Joindre Capital
5) Excel Industries
Target: Rs 1550
- The company is into agrochemical business
- Agrochemical demand to boost on good business
- The company is debt-free
6) Himadri Speciality Chemical
Target price: Rs 160
- Market leader in coal tar pitch with 70% share
- The company is into advanced carbon segment too
- Profit grew three-fold in FY18
- The company is focusing on product expansion
- Big clients in tyre and aluminium sectors
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7) Radico Khaitan
Target price: Rs 510
- Well-known firm in liquor segment
- Robust sales in FY18 at Rs 6270 crore
- Net profit in FY18 came in at Rs 123 crore from Rs 80 crore (YoY)
- Investment in consumption stocks to be profitable going ahead
8) Man Industries
Target price: Rs 150
- The company is into pipe manufacturing
- The company's order book is worth Rs 1800 crore
- FY18 profit increased to Rs 64 crore from Rs 33 crore (YoY)
- The company is focusing on debt reduction
