Two BSE 200, smallcap stocks to buy for 6 months; strong fundamentals suggest rally in next two quarters

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February 23, 2021 3:40 PM

BSE Sensex and Nifty 50 gained nearly 10 per cent so far this year to reach fresh record highs. However, amid rising bond yields, spike in COVID-19 cases and worries over surging commodity prices, headlines indices are now up nearly 4 per cent.

Sensex, nifty, COVID-19, mastek, dalmia bharat, S&P BSE 200S&P BSE 200 and S&P BSE SmallCap outgunned the equity benchmarks, rising 0.43 per cent and 0.72 per cent, respectively. Image: Reuters

BSE Sensex and Nifty 50 gained nearly 10 per cent so far this year to reach fresh record highs. However, amid rising bond yields, spike in COVID-19 cases and worries over surging commodity prices, headlines indices are now up nearly 4 per cent, erasing most of the gains made in the post Budget rally. Even as corporate earnings for the third quarter have been above Street’s estimates, analysts advise investors to remain cautious and adopt a ‘buy on dips’ approach. Domestic brokerage firm HDFC Retail Research has initiated coverage on S&P BSE 200 stock Dalmia Bharat and S&P BSE SmallCap stock Mastek Ltd. Both the broader market indices S&P BSE 200 and S&P BSE SmallCap outgunned the equity benchmarks, rising 0.43 per cent and 0.72 per cent, respectively.

Mastek Ltd: IT software products firm Mastek Ltd is expecting strong growth from multi-year deals led by the integration of Evosys and its capability to offer end to end solutions. The brokerage firm noted that the cloud services market continues to grow faster than traditional IT segments and Mastek has seen a healthy opportunity in the digital transformation phase in the industry. The acquisition of Evosys has helped the company in diversifying its geographical presence, product and service mix, along with customer diversification. Market share gains on the back of inorganic expansion are expected to drive the company’s long term growth.

Abdul Karim, Fundamental Research Analyst, HDFC Retail Research, said that the base case fair value of the stock is Rs 1273 (12.5x FY23E EPS) and the bull case fair value of the stock is Rs 1374 (13.5x FY23E EPS) over the next 2 quarters. Investors are advised to buy the stock on dips to Rs 1118-1122 band (11.0x FY23E EPS) and add more on dips to Rs 1016-1020 band (10.0xFY23E EPS). “At the LTP of Rs 1172, the stock trades at 11.5x FY23E EPS,” Karim added.

Dalmia Bharat Ltd: Dalmia Bharat is the fourth largest cement producer in India with a capacity of 26.1 MTPA. Jimit Zaveri, Fundamental Research Analyst, HDFC Retail Research, expects Covid-19 led lockdown and slowdown in the economy will lead to subdued growth in volumes for Dalmia Cement for FY21. The industry has a high dependence on the real estate and infra sector which is expected to be impacted due to the expected slowdown in the economy.

Zaveri believes that Dalmia Bharat is likely to get benefits from the strong market share gains in Southern India and Eastern India. Also, incremental cement capacity and better utilization to fuel further growth. The brokerage firm expects a 10 per cent CAGR growth in top-line and 55 per cent EPS CAGR growth over FY20-23E. The base case fair value of the stock is estimated at Rs 1,480, while the bull case fair value is Rs 1,590. Investors are advised to buy the stock on dips at Rs 1,370 and add more on dips at Rs 1,260 apiece.

(The stock recommendations in this story are by the respective research and brokerage firm. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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