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'Mid-cap and small-cap stocks help in wealth creation'

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'Mid-cap and small-cap stocks help in wealth creation'
Shilpa Johnson / Mumbai February 17, 2012, 0:39 IST

For quite some time now, the broader markets have been outperforming the Bombay Stock Exchange benchmark index. In 2011, while the Sensex fell by 24.6 per cent, a large number of individual stocks declined 20 to 80 per cent. Hence, the current recuperation is more a correction of last year’s disproportionate fall in these individual stocks. Individually, the mid-cap index saw a fall of 34.2 per cent, while the small-cap index slumped 42.6 per cent. The fund managers of Smart Portfolios’ Season 4 express their views on the broader markets and share how they would like to position themselves in this space.

For the week, Rikesh Parikh’s net worth stands at Rs 10,33,000, up 3.25 per cent; Ashish Mittal’s net worth is at Rs 10,56,000, up 5.62 per cent; Alex Mathews’ net worth is at Rs 10,69,000, up 6.86 per cent; and Ajay Parmar’s net worth totals Rs 1151,000, up 15.12 per cent.

Vice-president, equity strategies, Motilal Oswal Securities
“I have been booking profits and looking for new opportunities. I booked profits in Punjab National Bank, Dena Bank and Oriental Bank from the banking space, as the run-up there has been quite sharp. I also included pharma companies Divis Lab and Cadila Healthcare in my portfolio,” said Parikh.

Parikh expects a momentum to build up in DLF, as it is from one of the most beaten down sectors and a beneficiary of expectation of reduction in interest rates.

He feels Divis Lab has corrected to an attractive valuation and is a leading player in the contract research and manufacturing services segment.

Top Holdings Cost
price (Rs)
price (Rs)
(Rs lakh)
Cadila Healthcare 716.94 712.35 0.46
Mahindra & Mahindra 701.00 724.25 0.44
Pidlite Industries 144.72 151.65 0.38
Bharti Airtel 347.57 350.35 0.35
United Phosphorous 150.43 167.30 0.34
Total investments     3.45
Cash      6.88
Net worth     10.33

Ashish Mittal,
Fund manager – PMS, Centrum Wealth
“I have consistently maintained while large-cap stocks help in maintaining wealth, mid-cap and small-cap stocks help in wealth creation. Hence, I continue to play on wealth-creating stock ideas in my portfolio,” Mittal said.

From the old private sector banking space, he likes Dhanlaxmi Bank, as it trades at a 30 per cent discount to its book value, whereas most other banks trade anywhere between two X book value (public sector banks) and five X book value (private banks). Mittal believes the losses it made last quarter are temporary. “In fact, this could be a tactical opportunity for investors, as there is a possibility of the regulator proposing merger of this bank with a strong bank, as it has made losses. If any such move takes place, this stock could be a multi-bagger,” he said.

Mittal also suggests Balmer Lawrie & Co, a 100-year-old, zero-debt and asset-rich company, apart from being a rare play in the logistics segment.

“Aggressive plans for expansion, five per cent dividend yield, ROCE (return on capital employed) of 37 per cent and attractive valuations five X 2012-13 earnings make of the company an attractive bet for investment with significant potential for returns,” he said.

Top Holdings Cost
price (Rs)
price (Rs)
(Rs lakh)
MRF 6816.1 9691.2 0.8
Balmer Lawrie & Company 618.5 570.8 0.7
Karur Vysya Bank 372.6 394.7 0.7
Tide Water Oil 6751.4 7984.5 0.6
Bharat Electronics 1582.7 1515.9 0.6
Total investments     9.3
Cash      1.3
Net worth     10.6

Alex Mathews
Head (technical and derivatives research), Geojit BNP Paribas Financial Services
“We have seen a huge chunk of money coming from foreign institutions and they have found the beaten down non-index stocks at attractive valuations. Moreover, I see good buying in real estate, banking and automobile stocks, along with base metal stocks,” said Mathews.

He earned profits from Tata Elxsi and Amrutanjan and has recently added HCC, IB Real Estate, ICICI Bank and TTK Healthcare to his portfolio. Mathews plans to add more from the infrastructure, banking and automobile segments, once the impending correction is over.

From the infrastructure segment, he suggests IVRCL, IB Real Estate and HDIL. From banking, he suggests Axis Bank, ICICI Bank, UCO Bank, Federal Bank, YES Bank and DCB.

In his opinion, from the automobile segment, Bajaj Auto, Hero Motors and Tata Motors, would be good for investments and feels these stocks should be bought at corrections.

Top Holdings Cost
price (Rs)
price (Rs)
(Rs lakh)
ICICI Bank 947.11 968.80 0.97
Adani Enterprises 378.44 392.20 0.78
Mahindra & Mahindra 724.81 724.25 0.72
TTK Healthcare 463.10 462.40 0.46
Indiabulls Real Estate 78.95 76.90 0.40
Total investments     4.12
Cash      6.56
Net worth     10.69

Ajay Parmar
Co-head, investment banking, Emkay Global
Parmar stayed on the sidelines last week. Earlier, he had adopted a defensive strategy and booked profits on most stocks that had been a part of his portfolio.

According to him, the current rally in the broader markets is based on liquidity. “As long as liquidity exists in markets, these markets may not correct to a large extent,” said Parmar.

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