Midcap Stocks Top Picks: Federal Bank, Lupin, 2 Others Are Hot Stocks To Buy In Nov, Up To 25% Upside Seen

The November month started broadly in green with Sensex and Nifty 50 ending the trading week between October 30th to November 3rd with an upside of over 1% each. This was despite extreme volatility in the global cues. For the current month, Axis Securities has recommended four midcap stocks to buy with potential gains ranging from 9% to as high as over 25%. In the last three months, the brokerage said, midcaps are in a sweet spot of growth and have significantly outperformed Largecaps in the recent past.

Here is the list of four midcap stocks that are attractive bets for November 2023 as per Axis Securities:

Lupin: (Target Price: Rs 1,290, Potential Upside: 9% Ahead, CMP: Rs 1,185.50)

Axis Securities said, "We get more confidence in Lupin's business due to the launch of these 2 new products where it has a first-mover advantage. We believe both these products would increase the company's gross margins by 100bps in the next two years. Moreover, further developments in the business could add value in the business such as 1) New launches such as Darunavir, Cynocobalamin, Diazepem Gel, Vereniciline, Bromfenac, etc. in the US market (excl. gSpirva), 2) Double-digit growth in the India business as the company has already increased MR numbers to 1,000, and 3) An uptick in the API business with the API industry witnessing demand comeback."

It added, "Lupin's margins at 13% are still below the industry levels of 22%. We, therefore, foresee a significant scope for margin improvement in the upcoming quarters. We expect 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."

2. Federal Bank: (Target Price: Rs 180, Potential Upside: 25.4%, CMP: Rs 143.55)

While Federal Bank's margins have bottomed out, the expected increase in the CoD (though at a decelerating pace) over the next couple of quarters is likely to delay a sharper NIM expansion. However, FB's margins will find some support from the improving mix of higher-yielding products.

In its note, the brokerage said, " We expect NIMs to settle at ~3.2% in FY24E vs. 3.16% currently. Some of the new businesses (partner-led) are RoA accretive but incur higher costs (the C-I Ratio of ~65-70%). Thus, driven by strong business volumes and branch expansion (100 branches in H2FY24), cost ratios are expected to remain elevated before moderating to ~50% by the end of FY25. The fee income trajectory continues to remain strong and is expected to sustain momentum, thereby supporting superior RoAs. The bank eyes an RoA of 1.4%+ by FY25E and key levers for this RoA expansion would be (a) Improving margins, (b) Expanding Fee income, and (c) Moderating cost ratios."

3. Ashok Leyland: (TP: Rs 210, Potential Upside: 24.8%, CMP: Rs 168.30)

This automobile player remains well-positioned to benefit from a longish CV upcycle.

In its note, Axis Securities said, "We remain 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 expect 8% CAGR volume growth over FY23-26E."

The note further added, "We forecast the company to post Revenue/ EBITDA/PAT growth of 11%/22%/34% CAGR over FY23-26E. We maintain our BUY rating on the stock with the TP at Rs 210/share, valuing the stock at 19x Jun'25E EPS (unchanged), implying an upside of 25% from the CMP."

4. Relaxo Footwear: (TP: Rs 1,050, Potential Upside: 16%, CMP: Rs 907.25)

The Q1FY24 result was strong and the management's FY24 outlook gives us confidence that the worst is behind the company as - a) Demand environment is likely to recover in FY24, especially in rural India, 2) Raw material prices are now stable, which will aid in gross margins expansion, 3) The company is regaining its lost market share from unorganised players, 4) It is focusing on premiumisation by increasing the share of a fast-growing sports and athleisure category, and 5) The company is doubling its capacity of Sparx from the current 50,000 pairs/day to 100,000 pairs/day at Bhiwadi (Rajasthan).

These key factors Axis Securities believe is a step in the right direction from the long-term perspective.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.