“The Nifty is expected to remain in a structural bull phase with upside target of 16,200 that is implied by the three yearâ€™s consolidation breakout (12200-8000). Within the bull phase, a normal correction of 15-20% cannot be ruled out. However, such a correction should not be construed as negative. Rather it should be capitalised on as an incremental buying opportunity with key support at 11400,” says ICICI Securities.
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ICICI Securities’ top mid cap picks for 2021
The brokerage’s best mid cap picks for next year includes– Infosys, United Spirits, Bharat Electronics, Relaxo Footwears, Dr Lal PathLabs, Timken India and Can Fin Homes.
Here’s what the brokerage says about its top mid cap picks:
Infosys (Target Price: â‚¹1,410) : The IT sector has been a major outperformer in the CY20. We expect the outperformance to continue. IT major Infosys is our top pick. We expect the stock to extend the current rally and head towards â‚¹1,410 levels in the coming year as it is the 123.6% extension of the previous major rally ( â‚¹258-639) as projected from the CY2020 low ( â‚¹510) signals upside towards â‚¹1,410 levels.
We expect the company to continue to make a steady improvement in financials in coming quarters. Digital acceleration, large deal wins vendor consolidation and cost rationalisation remain key long term drivers
Further, Infosys has maintained healthy cash flow generation and has a consistent dividend payout policy. In addition, the company has narrowed its revenue and margin gap with TCS warranting a re-rating. Hence, we remain positive on the stock.
United Spirits (TP: â‚¹660) : USL has 80 brands of Scotch, IMFL, brandy, rum, vodka and gin; of which, 11 brands sell more than a million cases annually. On the balance sheet front, the company has improved its WC position, thereby lowering net debt by â‚¹780 crore (short term debt) in H1FY21 and also, improved its CFO generation (2.5% yield). Going ahead, pick-up in consumption due to festive season and opening of on-trade channels remain key triggers for the stock, along with long term trend of home delivery of alcohol.
Bharat Electronics (TP: â‚¹140) : The defence sector has witnessed strong buying demand in the second half of CY20. Among defence stocks, Bharat Electronics is our preferred pick. BEL is targeting a healthy growth of 12-15% during FY21E. Segments like radar and missile systems, communication and network centric systems, anti-submarine warfare & sonar systems, tank electronics, gun upgrades, electro optic systems and electronic warfare & avionics systems will continue to drive the companyâ€™s growth in coming years.
Relaxo Footwears (TP: â‚¹985) : Relaxo is Indiaâ€™s leading footwear manufacturing company, boasting of largest capacity of 7.5 lakh pairs per day. Over the years, Relaxo has consistently posted a superior performance, depicting the fundamental strength of the company. In the current scenario, as most people are working from home, sales of sandals and flip flop have witnessed significant surge in demand. Given the dominant presence in Tier II/III cites and being the market leader in value priced segment (~18 crore pairs sold annually), Relaxo is well placed to further consolidate its market share.
Dr Lal PathLabs (TP: â‚¹2,840): Established in 1949, Dr Lal Pathlabs is a proxy for Indian organised diagnostics sector with strong management pedigree and pan India presence. Besides favourable macro dynamics such as demand for preventive & wellness checks amid growing incidences of communicable and chronic diseases, the upheaval caused by Covid-19 bodes well for organised players like Dr Lal in the backdrop of faster shift from unorganised to organised market, potential inorganic opportunities in current environment and scalability benefits.
Timken India (TP: 1,360): Timken’s wind segment saw sturdy recovery post lockdown with demand coming from turbine manufacturers in EU, whereas demand for tractors also remains buoyant led by a good monsoon and relatively lesser impact of Covid in rural areas. However, CV segment is yet to pick up momentum. Exports as part of revenue declined to 26% in Q2FY21 vs 28% in Q2FY20. Nonetheless, the management expects exports to ramp up on the back of a solid order book and is expecting to improve utilisation levels at ABC Bearings plant from where it would be exporting Timken branded products.
Can Fin Homes (TP: â‚¹580): The NBFC has a total loan book size of â‚¹20,830 crore as on H1FY21, that has grown at 20.3% CAGR over FY15-20. Salaried and professionals contribute ~71% of the total loan mix while self employed make up ~29% of loan book, while builder loans are negligible. Can Fin saw its NII grow at a healthy 17.5% CAGR over FY15-20 where its NIM increased from 3.2% to 3.5% , while net profit saw a strong CARG growth of 34.3% over FY15-20 to | 376 crore for FY20. Can fin has a RoA of 1.9% and RoE of 17.5% for FY20 and return ratios have remained at healthy levels over past few years
Over the years Can Fin Homes has been able to maintain a strong asset quality and on this parameter the company is one of the best in the HFC industry. Even during pandemic the company has maintained steady asset quality with GNPA ratio of 0.72% as of September 2020.