Small, midcaps likely to outsmart large caps
With the worst of asset quality concerns behind us amid resolution of big ticket stressed assets and economic optimism in the post-Covid era, Nifty earnings CAGR is impressively placed at 22.7 per cent in FY21E-23E.
image for illustrative purpose
With the worst of asset quality concerns behind us amid resolution of big ticket stressed assets and economic optimism in the post-Covid era, Nifty earnings CAGR is impressively placed at 22.7 per cent in FY21E-23E. The analysts put the value of the Nifty at 14,400 i.e. 20x P/E on FY23E EPS of 720 with corresponding Sensex target at 50,000, according to a report by ICICI Securities. For CY21, the expectation from midcaps and small caps to is that they gain relatively more than the large caps. The suggestions and estimations are based on the fact that delta in the earnings growth during a recovery phase will be high in midcaps and small caps vis-à-vis large caps whereas multiple expansions in the former will provide additional alpha for capital appreciation.
Other macro factors like benign interest rates and structural cost rationalisation measures will also aid operating and financial leverage for this category. Hence, the suggested top picks for CY21 are in the midcap and small cap space.
Nifty fair value pegged at 14,400
| Stock Picks for 2021 | |||
| Company | CMP(`) | Traget Price(`) | Upside(%) |
| Phillips Carbon Black | 171 | 210 | 23 |
| PNC Infra | 174 | 220 | 26 |
| HCL Tech | 941 | 1105 | 17 |
| Amber Enterprise | 2380 | 2830 | 19 |
| Navin Fluorine | 2608 | 3040 | 17 |
| Indoco Remedies | 297 | 380 | 28 |
| Divis Lab | 3800 | 4425 | 16 |
CY20 was a remarkable year for the global economy as well as the equity markets. From the extreme end of despair and uncertainty, the year is ending on a note of recovery and hope as the fight with the pandemic nears an end with the beginning of vaccination.
Indian equities were no different from global equity markets as they staged a heroic recovery of ~84 per cent from the lows (~15 per cent return for CY20) after the disastrous fall of ~39 per cent in February-March 2020. As2021 begins, the resilient domestic setup points towards a recovery in key macroeconomic data, viz. GDP, Infrastructure spending post a weak year.
Corporate earnings post the dip are likely to show a handsome growth trajectory. However, after a 'V-shaped' recovery and a flush of liquidity in the capital markets in CY20, the economic recovery path ahead is likely to be uneven. Furthermore, rising commodity price led inflation and new strain led risk of restrictions and lockdowns, also persist. CY21, therefore, presents an opportunity where the basic tenet of asset allocation and sectoral/security selection will be tested and identification of micro themes across segments will hold the key.
Some of the likely micro economic development themes to look for in CY21 are as follows: PLI scheme boost for textile/electronics/specialty steel and benefits of import substitution; Food processing to utilise excess farm output for value addition. CRAMS - Significant capex hints at growing visible opportunities; Cloud based opportunities in the IT sector; Expected cyclical upswing of CV segment; Insurance on the cusp of sustained structural growth; Product based capital goods companies to benefit from capex upcycle; and Roads and Highways is going to be a resilient segment within infrastructure.
(Source: ICICIDirect.com)
