No stopping these 12 midcaps that defied the 2018-2019 meltdown

NEW DELHI: Twelve stocks that defied the sharp plunge in midcap stocks all through 2018 and 2019 are off to a solid start in 2020 as well, suggesting immense investor faith on these counters.

These stocks climbed 20-90 per cent in the previous two years – a feat, as two of every three BSE Midcap index stocks delivered negative returns during the period – and are up another 45 per cent in 2020 so far.

Institutional investors – be it foreign portfolio investors, mutual funds and insurance companies – have strong holdings in most of these stocks.

Among them is AU Small Finance Bank, whose stock has rallied 45 per cent so far this year after delivering 22 per cent return between January 1, 2018 and December 31, 2019. Institutional investors hold 42.3 per cent in this company, which quotes at a price-to-book value (PBV) of 10.2 against an industry average of 3.1, data available at AceEquity suggests.

Benchmark BSE Midcap index, which hit a record high of 20,183 in January 2018, has declined 16 per cent in last two years, but is up 4.85 per cent so far this calendar.

Divi’s Labs is up 18 per cent so far this year after rallying 68 per cent in last two years. Institutional investors hold 35.1 per cent in this pharma stock, which trades at 45.3 times its trailing 12-month PE compared with an industry average of 27.9.

Adani Enterprises has jumped 24 per cent in the first two months of 2020 after climbing by a similar percentage in last two years. FIIs and DIIs hold 22 per cent in this firm, whose current PE at 20.8 times is in line with industry average.

Shares of Honeywell Automation India have climbed 27 per cent this year after rising 42 per cent in last two year. This stock trades at a PE multiple of 66.6 against an industry average of 61.5. Institutional investors, mainly mutual funds, hold 14.8 per cent stake in the firm, where promoters hold 75 per cent.

Torrent Pharmaceuticals, Muthoot Finance and Aditya Birla Fashion and Retail have gained 17-21 per cent this calendar after rising 30-70 per cent in past two years.

Glaxosmithkline Consumer Healthcare, L&T Infotech, Godrej Properties, Info Edge (India) and Berger Paints India are some of the other stocks that have delivered double-digit returns this calendar after rallying up to 91 per cent in last two years.

Data showed 65 of 101 BSE Midcap index stocks have slipped in last two years.

Analysts are still bullish on some of these stocks.

AU Small Finance Bank is one of Motilal Oswal Securities’ top stock ideas for 2020, as it feels a surge in profitability will ensure that rich valuations for the stock stay.

Divi’s Labs, which derives nearly half of its revenues from the API segment, is seen as a key beneficiary of the disruption due to the China virus outbreak.

“Companies globally are evaluating alternate sources for procurement and this is likely to be a key positive for Divi’s. The company may benefit from backward integration, an aggressive capex plan implemented in the past and outsourcing opportunities. Also, the company does not have pending regulatory hurdles, which is a key positive and offers visibility for growth,” Sharekhan said.

Anand Rathi Financial Services likes Honeywell, as the company has a robust balance sheet with zero debt, a healthy RoE of 22-23 per cent and strong parental support, the brokerage said.

Karvy Stock Broking says Torrent Pharma’s woes in various markets appear to be receding and the company is all set to show double-digit topline growth in key markets, which will give the impetus to margins.

Quantum Securities said post Muthoot Finance’s Q3 results, where the company posted 66 per cent rise in profit, it has revised sharply its profit estimates by 18 per cent for FY20E and 15 per cent FY21E. The brokerage has an ‘accumulate’ rating on the stock.