It has been a year of mid and small-cap stocks on the Indian bourses. The BSE Mid-cap index is up 41.6 percent since the beginning of the 2023 calendar year, nearly three times the rally in the benchmark BSE Sensex during the period. The benchmark index is up only 14.4 percent year to date. Similarly, the BSE Small-cap index is up 43.8 percent since the start of the year.
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Most analysts and market experts expect mid-caps to outperform their large-cap peers in the 2024 calendar year as well given that most domestic investors including mutual funds largely invest in them. This makes it imperative for retail investors to stay invested in this space. However, it's necessary to churn your stock market investment portfolio at regular intervals to keep it in top shape.
The year-end is the best time to weed out laggards from your basket and replace them with stocks that have the potential to be outperformers in the New Year.
Here are ten midcaps whose financial performance in recent quarters hints at a strong show in the 2024 calendar year. These stocks offer the best combination of superior earnings growth in the last 12 months, high double-digit return on equity, a strong balance sheet with low or minimum debt on their books and relatively low valuations. The stocks are from the universe of the BSE Mid-Cap and Nifty Mid-Cap 100 index. The data excludes companies from the banking, finance and insurance sectors.
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1. At the top of our list is the government-owned Mazagon Dock Shipbuilders. The Mumbai-based company’s net profit was up 63.3 percent year-on-year in the last 12 months while its net sales were up 14.7 percent Y-o-Y in the period. It is a debt-free company with a return on equity of nearly 26 percent. The stock is trading at a trailing P/E of 33X and a price-to-book value of 8.7X. Currently, it has a market cap of around Rs 42,000 crore.
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2. The Gurgaon-based agrochemical producer PI Industries is next on our list with 46 percent and 19 percent Y-o-Y growth in its net profit and net sales respectively in the last 12 months. The company reported a return on equity of 19 percent. It is trading a trailing P/E of 35X and a price-to-book value of 6.6X. Its current market cap is Rs 53,000 crore.
3. The heavy-duty automotive and industrial engine maker Cummins India comes next on our list. The Indian subsidiary of the American multinational offers a good combination of a strong balance sheet and a reasonable valuation. The company’s net profits and net sales were up 54 percent and 20 percent Y-o-Y respectively in the last one year. The stock with a RoE of 24 percent is trading at a P/E of 37X and price to book value of 9.5X currently. The company's current MCap is Rs 53,500 crore.
4. The Mumbai-based real estate developer Oberoi Realty is next on our list with a market cap of Rs around Rs 52,000 crore. The company's net sales were up 45 percent Y-o-Y in the last one year while its net profit was up 38 percent Y-o-Y in the period. The stock with a debt-to-equity ratio of 0.3 is currently trading at a P/E of 25x and price-to-book value of 4.5X. It reported an RoE of 15.3 percent in the last 12 months.
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5. The electrical cable and home appliance maker Polycab India comes next in our list with net profit and net sales growth of 52.3 percent and 20.4 percent respectively in the last one year. It’s a debt-free company with a high RoE of 22.3 percent. With a market cap of around Rs 84,000 crore currently, Polycab is trading at a P/E of 53X and P/B ratio of 12X.
6. The Mumbai-based pharma major Alkem India is the next company on our list. The company’s net profit and net sales were up 37 percent and 15 percent respectively in the last one year. It’s a debt-free company with a return on equity of 15.3 percent in the last one year. With a market cap of Rs 57,300 crore currently, the stock is trading at a P/E of 39X and P/B of 6X.
7. The multinational Bayer Crop Science comes next on our list with an earnings growth of 16.3 percent and net sales growth of 6 percent in the last one year. It is a debt-free company with an RoE of 24.5 percent. With its market capitalisation of Rs 24,300 crore, the stock is trading at a P/E of 32X and P/B of 8X currently.
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8. The multinational pharma major Abbott India is next on our list with earnings and revenue growth of 22.6 percent and 9.2 percent respectively in the last one year. It’s a debt-free company with the latest RoE of 35 percent. The stock with a market cap of Rs 48500 crore is trading at a P/E of 45X and P/B of 16X.
9. L&T Technology is next on our list with a net profit and net sales growth of 17 percent and 18 percent respectively in the last one year. It’s a debt-free company with the latest RoE of 26.5 percent. The stock with a market cap of Rs 53,300 crore is trading at a P/E of 42X and P/B of 11X.
10. The multinational men's grooming products maker Gillette India is the last company on our list. Its net profit and net sales were up 23 percent and 10 percent respectively in the last one year. It’s a debt-free company with a return on equity of 15.3 percent in the last one year. With a market cap of Rs 20,300 crore, the stock is trading at a P/E of 56X and P/B of 21X currently.
Happy Investing!
(Disclaimer: This article is for information purposes only. Readers are advised to consult a certified financial advisor before investing in any of the funds or securities mentioned above.)
(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).
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