8 Mid & Small Cap Stocks To Buy Picked From The Value Guide Report

Sharekhan has come out with its latest Value guide Report for Jan. In it, the brokerage firm has highlighted few of its preferred stock picks from the small and midcap space. Before that, we share what Sharekhan feels on the markets.

Valuations, not expensive yet, but risk of multiple de-rating ahead

According to Sharekhan, contrary to general view, they do not feel valuations are expensive. "Nifty trades at 18.5-19x FY2024 and 16.8-17x FY2025 earnings. The valuations are not at a premium to historic average multiples and quite reasonable given the strong growth in earnings and multi-year economic upcycle ahead. However, on relative basis, the valuations do look stretched as Indian market has outperformance over MCSI EM Index by close to 28-29% in the eight months of this fiscal.

Also, the returns in debt funds could be attractive in 2023 as the interest rates are close to peak and could moderate ahead. Thus, there could be risk to continued strong retail inflows especially given the run up to general election and several state elections in the second half of the year 2023," the brokerage has said.

Portfolio Strategy – Invest in 3Cs of Credit, Consumption & Capex

According to Sharekhan, benchmark indices, Nifty/Sensex, could provide returns in line with expected corporate growth in earnings in year 2023 as we see limited scope for any meaningful expansion in valuation multiples. "But we expect divergence in returns across sectors. Our key investment theme for year 2023 can be summed up as 3Cs -- Credit, Capex and Consumption. Accordingly, we are positive on banks & financials, engineering, infrastructure, real estate & building material and consumer discretionary companies including autos/auto ancillary companies. Also, we expect bottom-up picks from the broader markets to also to do well," the brokerage has said.

Preferred stocks to buy from the mid and small cap space, according to Sharekhan

Name of stock	Current market price
Cummins India	1495
Devyani International	167.9
Hindustan Aeronautics,	2450
Macrotech	1023
Wonderla Holiday	351
Moldtek Packaging	149.2
PI Industries	3303
APL Apollo Tubes	1128

Corporate earnings – Healthy growth to sustain aided by margins expansion

According to Sharekhan, despite severe input cost pressures and a slowdown in demand from Europe, Nifty is likely to end FY2023 with 11-12% growth in aggregate earnings on the back of a sharp recovery in earnings of banks (58%), autos (29-30%) and select heavyweight like Reliance Industries, Bharti Airtel, etc. "Interestingly, the consensus is expecting earnings growth to jump to a 15-16% CAGR over FY2023-2025 despite moderation in economic growth to 6-6.2% in the same period. The growth in Nifty earnings is expected to be aided by margin expansion as inputs cost pressures (both commodity and fuel) eases out due to slowing growth in global economy. Thereby, this takes the Nifty EPS estimate close to Rs. 1100 by FY2025," the brokerage has said.

Disclaimer

The stocks have been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.