Key ideas for India's mid-cap sector for 2025

Investing.com -- India’s mid-cap and small-cap outperformance against large caps over the past two years has valuation gap at historical high, UBS said signalling a potential correction in the near term.

The divergence in performance between the Nifty Midcap 100 and the Nifty 50 indices has reached unprecedented levels, driven largely by re-ratings in fiscal 2023-24.

“Based on past cycles we believe a SMID correction is long overdue,” the note said, drawing parallels to the correction seen in 2018-19.

Around 80% of the 20 SMID-heavy sectors UBS tracks, including chemicals, home improvement, and exchanges, are trading at or above their three-year average multiples.

UBS says top-down value strategies are challenging in the current environment, but selective bottom-up ideas with strong fundamentals could still offer opportunities.

UBS expects significant growth in Delhivery Ltd's (NS:DELH ) express and part truck load businesses, aided by market share gains and margin improvement. Stock is rated buy with target of 525 rupee, which translates to a upside of 57%

Indian Energy Exchange Ltd (NS:IIAN ) which is rated buy with 260 rupee, implies an upside of 49%. With a 19% YoY rise in trading volumes in fiscal 2025 to date, driven by real-time and green markets, UBS sees IEX benefiting from stringent renewable obligation mechanisms and new product launches.

Buy rated Multi Commodity Exchange of India Ltd (NS:MCEI ), with 8,000 rupee target offers 35% upside. UBS noted potential growth from increased participation, new product offerings such as weekly options, and electricity derivatives. Concerns about sequential growth deceleration are viewed as overstated.

While Navin Fluorine International Ltd (NS:NAFL ), also rated buy has a target of 4,250 rupee, about 22% upside. The company’s capacity expansion in specialty fluorochemicals and improved margin prospects from backward integration are expected to drive revenue growth.

Ramkrishna Forgings Ltd (NS:RKFO ) has an upside of 66%. UBS is optimistic about RKFL’s revenue visibility from railway orders and aluminium forging projects, despite concerns about a cyclical slowdown in the commercial vehicle market.

Shyam Metalics and Energy Ltd (NS:SHYE ) also offers a upside of 53%. UBS noted diversification into battery-grade aluminum foil and potential anti-dumping duties on Chinese imports as key drivers for the company’s growth.

Source: Investing.com