5 midcap, smallcap stocks to buy; broader market rally beats Sensex, Nifty in August

BSE Sensex and Nifty 50 gained 4.5 per cent in August, after adding 7 per cent in July. But broader markets gained more; BSE SmallCap index surged nearly 9 per cent, and BSE MidCap index jumped 6.88 per cent in August. Research and brokerage firm Emkay Global Financial Services has recommended five small and mid-cap stocks which have the potential to gain and offer good returns in coming months.

At around 1.30 PM on Friday, the broader markets were outperforming equity benchmarks. BSE Midcap index was trading 0.57 per cent or 86.60 points down at 14,992.48, while the BSE SmallCap index was ruling at 14,707.45, down 0.37 per cent or 53.88 points, compared to a 0.82 per cent fall in S&P BSE Sensex. The Emkay’s list of small and mid-cap buys includes stocks such as Birla Corporation, Escorts, Granules India, Persistent Systems and Varun Beverages.

Birla Corporation: With a ‘buy’ rating to the stock, Emkay Global Financial Services believes that the valuation multiple for Birla Corporation will re-rate gradually as the company continues with capacity expansion plans. In the sector, companies that expanded capacities have generated higher stock returns. The report also noted that the recovery in cement demand in North, Central and East markets has surprised positively post easing of lockdowns The brokerage firm has pegged a target price of Rs 779, an upside of 26 per cent from the previous close.

Escorts: Escorts is a key beneficiary of tractor upcycle. Post lockdown phase, tractor volumes have been robust in recent months. Emkay Global highlighted that it expects volume momentum to persist, supported by positive rural sentiment, owing to increase in Kharif sowing area indicating a bumper harvest, higher MSPs and increase in government spending in various rural/agri schemes. “Escorts is expected to sustain share on channel expansion for both brands (Farmtrac and Powertrac), sales promotion initiatives in focus markets and expansion in product offerings,” it added.

Granules India: The stock hit a fresh 52-week high of Rs 344.40 apiece, rising 277 per cent from its 52-week low of Rs 91.25 per share. The brokerage firm has maintained a ‘buy’ rating to the stock added saying that following capacity addition, the business momentum is strong, with revenue/EBITDA growth of 20%+/35% in FY20. It expects the momentum to continue.

Persistent Systems: The brokerage firm sees scope for ‘upside risks to estimates’ and potential re-rating, given the relative discount to peers. In its report, Emaky noted that the IT Consulting and Software company’s business continues to rebound led by the interventions undertaken by the new leadership.

Varun Beverages: According to Emkay Global’s report, visible market share gain opportunities and scope of distribution expansion in healthy growing Juice category drive above-industry growth expectations. It has recommended to buy Varun Beverages stocks as low-peak month plant utilisation, coupled with strong revenue growth, should help continuous improvement in RoIC despite low scope for margin improvement and future capex.

(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.)