Smallcaps have been outperforming large cap stocks since the beginning of the ongoing financial year 2016-17. Consider this: The BSE Smallcap index jumped 7 per cent to 11385.08 on June 9 from 10639.84 on April 1. On the other hand 30-share Sensex gained 5.91 during the same period.
Among the 768 components in the BSE Smallcap index, 489 gave positive return to investors during April 1-June 9. Stocks such as Tata Metaliks surged the most — 241.57 per cent to Rs 331.15 from Rs 96.95 during the same period, followed by Shilpi Cable (up 149.48 per cent), Kiri Industries (up 117.27 per cent), Gokaldas Exports (up 93.17 per cent) and Diamond Power Infrastructure (up 89.26 per cent).
G Chokkalingam, founder and managing director, Equinomics Research & Advisory said, “There are two sets of rally in the smallcap segment – one where fundamentals remain strong, and the other where bubble is being built. Once again few companies which have changed the names have come back to market and are enjoying super-premium valuations. It is time to be cautious in such cases.”
On the other hand, Rainbow Papers, Prakash Steelage, Visagar Polytex and Nyssa Corporation slipped 76.61 per cent, 71.61 per cent, 67.29 per cent and 59.96 per cent, respectively, in the ongoing financial year till June 9.
From here onwards, normal monsoon and Seventh Pay Commission will give some boost to overall market sentiments. The Indian Meteorological Department has said there are zero per cent chances of receiving deficient rainfall in India while the possibility of normal to excess rainfall is 96 per cent.
Pankaj Pandey, head of research, ICICI Securities said, “In case of normal monsoon and Seventh Pay Commission, overall markets will get a push including small caps.”
In a recent interview to various media houses Mark Mobius and Shankar Sharma showed their interest in smallcap stocks.
Shankar Sharma of First Global in an interview to CNBC TV 18 said, “Indian smallcap companies are best equity class in the world and believes there is plenty of growth ahead for smallcaps.”
Mark Mobius, executive chairman of Templeton Emerging Markets Group in an interview to Bloomberg Quint said that he is bullish on Indian smallcap companies and believes that they are likely to climb after trailing the rally in the biggest shares as benefits from Prime Minister Narendra Modi’s growth-boosting measures take hold.
With the help of few brokerage houses we collate a list of 10 smallcap stocks from the BSE Smallcap index which can give you good returns in the next 12-24 months.
Monte Carlo Fashions
Recommended By: KRChoksey Institutional Research
Investment Rationale: The share price of the company jumped 10.12 per cent in FY17 till June 9. KR Choksey in a research report said, “Monte Carlo Fashions is one of the leading brands in woollen segment but it is currently changing its dependency from woollen segment and focuses to grow cotton segment and also focuses to increase its presence in west and south region through cotton segment. The business model has no inventory risk and credit risk and also have healthy return ratio. We have a stable view and estimate the growth of around 20 per cent in FY17E and 21 per cent in FY18E. We have ‘Accumulate’ rating on the stock with a target of Rs 531.
Recommended By: Nirmal Bang Institutional Research
Investment Rationale: Manappuram Finance (MFL) is the second-largest non-banking finance company or NBFC in the under-penetrated organised gold finance market in India. The company has a two-pronged strategy, enabling it to enter into a growth phase. Firstly, it has de-risked its gold loan portfolio from gold price volatility leading to lower auctions and non-performing assets or NPAs. Secondly, it has diversified its portfolio into non-gold products to drive growth and utilise excess capital on its books. With strong assets under management or AUM CAGR of 25 per cent, healthy net interest margin or NIM, operating leverage and contained credit costs, Nirmal Bang expects net profit to post a 27 per cent CAGR over FY16-FY18E. The brokerage house has ‘Buy’ rating on Manappuram Finance with a target price of Rs 85.
Recommended By: Angel Broking
Investment Rationale: The company is one of the largest air-conditioning companies in India. With a mere 3 per cent penetration level of ACs vs 25 per cent in China, the overall outlook for the room air-conditioner (RAC) market in India is favourable. Aided by increasing contribution from the Cooling Product Division (CPD), Angel Broking expects the overall top-line to post a revenue CAGR of around 15 per cent over FY2016-18E and margins to improve from 5.7 per cent in FY2015 to 7.1 per cent in FY2018E. Moreover, the merger with Blue Star Infotech has infused cash and strengthened the balance sheet. Angel Broking has ‘Buy’ on Blue Star with target price of Rs 495.
Dewan Housing Finance
Recommended By: Angel Broking
Investment Rationale: Angel Broking expects DHFL’s AUM to grow at a CAGR of 21 per cent over FY2016-18, as demand for housing in the middle and low income group picks up, while PAT CAGR is expected to be 22 per cent. DHFL to post a healthy loan book CAGR of 21 per cent over FY2015-18E, which is likely to translate in an earnings CAGR of 22 per cent, over the same period. The stock currently trades at 0.9x FY2018E ABV. Angel Broking recommends a ‘Buy’ on the stock, with a target price of Rs 270.
Recommended By: Equinomics Research & Advisory
Investment Rationale: Sasken is cash-rich IT company, trading at enterprise value to annual revenue at around 0.5 times, while most consolidations recently in the mid-sized IT companies happened around 1.5x.
SKS Microfinance Ltd (Buy)
Recommended By: Rohit Gadia, founder and CEO, CapitalVia Global Research
Investment Rationale: Overall the stock is in strong uptrend in its daily and weekly chart. The stock is trading well above its 50DMA which is sloping up signifies the strength of the trend. We are expecting it to gain further momentum upside going forward.
Tata Elxsi Ltd
Recommended By: CapitalVia
Investment Rationale: The trend of the stock is extremely bullish and is consolidating near the resistance mark of 1850 from last few weeks. We believe this consolidation is part of the overall up trend which is likely to resume soon. Technically another wave up is due for the stock as part of the up trend started since last year.
Recommended By: Venu Madhav, chief operating officer, Zerodha
Investment Rationale: Igarashi motors are in the auto ancillary business manufacturing small DC motors which are used in a variety of applications, right from automobiles to drilling machines. Having posted good quarterly numbers, the brokerage house expects the stock to do well over the course of the next 2 years with targets at around Rs 940.
Recommended By: Zerodha
Investment Rationale: They are one of the largest two wheeler cable manufacturers. The consolidated Q4 results, including Phoneix Lamps were ahead of expectations. It reported robust topline growth and Zerodha expects the same to continue with the improving outlook for 2-wheeler demand. The management is working on bringing in a new line by year end which makes the stock an exciting prospect for us. Technically the breakout at Rs 150 with strong volumes makes us believe that the stock has the momentum to go on to Rs 240 in the coming months.
Recommended By: Zerodha
Investment Rationale: Ramco Industries is one of the best performing, highly efficient producers of Fibre Cement sheets in India and is a market leader. Backed by a strong management, the brokerage house believes the stock can reach Rs 160.