HSBC dispels fears of deeper correction in midcaps. Picks Nykaa, 7 more stocks as buys

1) Domestic macro is much stronger now with a 6.9% GDP growth rate versus 3.9% in 2018.

2) Retail inflows through SIPs have more than doubled to a Rs 16,000 crore monthly run rate, which should provide continued support.

3) Midcap premium to largecaps has fallen to 17% from 30% in January, which appears to be in the mid-cycle range.

4) Earnings witnessed a sharp downgrade in 2018 on rich expectations (22%) while the current expectation at 15% seems more realistic, in its view.

5) 2018 was a year of adverse disruptions, which saw IL&FS crisis, LTCG tax along with global tightening cycle. In the current context, there is hope of rate cuts in the second half of the year.

Stocks to buy

Nykka: Buy | Target: Rs 240 | Upside: 57.5%

HSBC sees as a formidable platform with its brands looking well positioned to capture the exponential growth opportunity in beauty and personal care (BPC). Following a 14% correction in 2024 so far, versus a 4% correction in BSE midcap index, the stock trades at appealing valuations.

: Buy | Target: Rs 143 | Upside: 53.8%

The company has significant growth opportunities with a total addressable market of over Rs 7 lakh crore. Geographic expansion, new product introduction, scaling-up in existing products and its small AUM of Rs 32,800 crore as of 3QFY24 will allow the company to grow at a 25-30% CAGR in the medium term. A conversion into a universal bank, an improvement in cost efficiencies would further augment its ability to grow and protect its profitability.

: Buy | Target: Rs 1,270 | Upside: 26.3%

Prestige is demonstrating its strong intent and execution capabilities in entering new markets and scaling up. It is also building an impressive commercial office portfolio, which sets it up for the next stage of growth. An 11% correction in the stock in 2024 makes the current risk-reward quite favourable.

: Buy | Target: Rs 3,130 | Upside: 18.8%

Phoenix Mills has demonstrated a record of value creation, strong partnerships, low leverage, significant free cash flow generation, seizing a plethora of opportunities in new cities, and a focus on its core business. Stabilisation of new malls and its office portfolio will likely drive high double-digit earnings growth over next three years.

: Buy | Target: Rs 1,250 | Upside: 18.3%

Voltas’ performance in CY23 was a good balance of growth and profitability which is impressive, reflecting the strong growth resilience of the air conditioner category. Voltas can improve its market share in CY24 and improve margins. Downside risks include continued market share loss due to heightened competition and continued losses in project business.

: Buy | Target: Rs 1,200 | Upside: 40.6%

The largest wagon manufacturer and emerging leader in the passenger coach business will likely be the key beneficiary of the government’s thrust to put more freight on rails and railway modernisation. It has a large order book of Rs 27,500 crore, which is 7X of its trailing 12 months revenues.

: Buy | Target: Rs 1,335 | Upside: 14.6%

Ipca Labs is set to see strong EBITDA margins improvement of over 470 bps and PAT CAGR of 50% for FY24-26e on easing cost pressure and operating leverage, HSBC said. The stock performance has been resilient amid broader market sell-off.

Kalyan Jewellers: Buy | Target: Rs 420 | Upside: 12.6%

Kalyan has an aggressive, franchise-led network expansion strategy with 194 showrooms in India. The multibagger stock is up 234% in the last 1 year versus 55% gain in BSE midcap index. Kalyan’s valuation (44x fwd PE), implies 15% long-term earnings growth expectations though stock gains from hereon, could be more gradual.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)