Top stocks to buy post SEBI ruling: 5 high conviction midcap stocks with strong fundamentals, growth potential

Ashok Leyland, Tata Power, mid caps, small caps, Dr Lal PathLabsOn a year-to-date (YTD) basis, one year, three years and five years performance, Nifty has underperformed the midcap and smallcap indices

With the latest SEBI ruling, where multicap schemes of mutual funds have to invest a minimum of 25 per cent each in large, mid and small-cap stocks, most analysts have turned bullish on the midcaps and small caps. On a year-to-date (YTD) basis, one year, three years and five years performance, Nifty has underperformed the midcap and smallcap indices. Motilal Oswal Financial Services believes that the outperformance of three and five years is substantial. Also, Nifty smallcap P/E has also bounced off its March 2020 lows of 8.5x. “This development has renewed retail interest and activity across the mid-cap and small-cap space,” said Hemang Jani, Head – Equity Strategy, Broking & Distribution, Motilal Oswal Financial Services Ltd.

The brokerage firm has prepared a basket of five high conviction midcap stocks which are fundamentally sound with good growth potential, with an equal weightage of 20 per cent. “While subsequent SEBI clarification has taken some sheen off the excitement around expectations of a potential mid/small cap party, we believe stock-specific action will continue wherever there is an interesting theme/story across the broader market,” Jani added.

Aditya Birla Fashion and Retail Ltd: In a recent filing to the BSE, ABFRL informed that the company had fixed September 11, 2020, as the record date for the purposes of payment of redemption amount with respect to CP, due for redemption on September 14, 2020. The brokerage firm notes that the company’s execution over the last few years has been outstanding. Furthermore, management has shown remarkable efforts toward cost control at a time when earnings are muted.

JK Cement: JK Cement shares were trading near to their 52-week high of Rs 1,613 apiece, touched last month. In today’s trade, shares gained 1.4 per cent to trade at Rs 1,606 apiece. Motilal Oswal sees the cement major best placed in the industry to benefit from the robust north India market as it is the only company with new integrated capacity in the region. “The expansion improves its regional mix in favor of north/central India as well as helps it move down the cost curve,” it said.

Tata Power: Tata Power shares have rallied over 115 per cent from May low of Rs 27 apiece. While the stock is still 15 per cent off from its 52-week high of Rs 68.80 hit last year in September. The brokerage firm in its report highlighted that divestment related measures and the infusion of Rs 2,600 crore from promoters would continue to aid debt reduction. Further, the approval of a tariff hike at Mundra, possible benefits from the merger of CGPL & Tata Power Solar with TPWR, and favorable InvIT valuations provide upside to the stock.

Ashok Leyland: The flagship company of the Hinduja Group and commercial vehicles manufacturer Ashok Leyland has received an order for 1400 intermediate commercial vehicles (ICVs) from a logistic start-up company, Procure Box. Unlike the previous cycles, Ashok Leyland is on a strong footing with the lean cost structure and negligible debt. “Ashok Leyland seems to be in a better position to emerge stronger and grow faster than the industry over the next 2-3 years,” the brokerage firm added.

Dr. Lal Pathlabs: Dr. Lal PathLabs is a diagnostic and related healthcare tests and services provider in India. Motilal Oswal Financial Services said that the company remains confident of its brand power, service quality, high-end test capability, network of collection centers and ability to drive volume growth and profitability.

(The stock recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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