Markets reward mid-caps

About 192 stocks from the BSE-500, small-cap and mid-cap indices have gained by up to 44%

While the S&P BSE Sensex has declined about 700 points compared to its January 23 high, about 200 stocks have outperformed the market, recording positive returns.

Since January 23, as many as 192 stocks from the BSE-500 small-cap and mid-cap indices have gained up to 44 per cent, compared with the 3.5 per cent decline each in the S&P BSE small-cap and mid-cap indices. Analysts say strong performances for the quarter ended December 2013 have seen these stocks outperform the benchmark indices during this period.

Of the 192 stocks, 52, which appreciated more than 10 per cent, posted 65 per cent year-on-year (y-o-y) growth in aggregate net profit at Rs 2,508 crore for the quarter ended December. These companies had reported an aggregate profit of Rs 1,515 crore in the year-ago period.

Among individual stocks, Monsanto India rallied 44 per cent to Rs 1,201 on the BSE, owing to a 122 per cent y-o-y jump in net profit at Rs 65.11 crore. Operating profit margin rose 1,200 basis points to 36.6 per cent during the December quarter.

Deven Choksey, managing director and chief executive, K R Choksey Securities, says 15-20 per cent growth in earnings in 2014-15 and 2015-16 is possible if growth in gross domestic product rises to six-6.5 per cent. “Given the possibility, growth valuations are quite attractive in the sub 14-times earnings. I would bet for re-rating of valuations and believe Indian markets could appreciate 15 per cent CAGR (compounded annual growth rate) in two years,” he says.

“Valuations for the utility and industrial sectors are at 26 per cent and 24 per cent discounts to their historical averages, respectively. Attractive valuations, combined with signs of a pick-up in earnings momentum, reinforce our view that investment-led sectors are bottoming,” said Rajesh Cheruvu, chief investment officer, RBS Private Banking (India).

Ridham Desai, Sheela Rathi and Utkarsh Khandelwal of Morgan Stanley said: “We see downside risk to margins in consumer staples and financials and upside risk in technology, telecom and consumer discretionary. We are going overweight on telecom; we are already overweight on technology and consumer discretionary.”

Mukul Kochhar, Aditya Jhawar and Nitesh Sharma of Espirito Santo Securities say: “Decent acceleration in the export-driven portion of the economy is offsetting continued deceleration in investment, as sales decline in the investment economy…FY14 third-quarter earnings are supportive of the thesis of CAD (current account deficit)-driven stabilisation in the economy.”

	Price on BSE in Rs			Net profit in Rs crore
Name	Jan 23, 2014	Feb 19, 2014	%chg	Q3FY13	Q3FY14	%chg
Monsanto India	835.1	1201.2	43.8	29.3	65.1	122
Hatsun Agro Products	215.5	301.6	40.0	15.0	30.9	106
Amtek Auto	67.5	92.4	36.9	49.4	78.0	58
Godfrey Phillips	2586.7	3491.1	35.0	49.2	70.7	44
R Systems Int'l	371.7	495.5	33.3	2.9	21.8	648
Piramal Glass	78.8	103.4	31.2	4.7	12.1	157
Mayur Uniquoters	339.8	440.9	29.8	10.3	14.2	39
Tata Elxsi	376.0	479.9	27.6	8.8	21.6	146
Kaveri Seed	403.9	508.9	26.0	10.7	36.5	242
Balkrishna Ind	313.1	387.3	23.7	74.4	123.9	66
Source: CapitalinePlus
Data compiled by BS Research