HSBC dispels fears of deeper correction in midcaps. Picks Nykaa, 7 more stocks as buys
midcap stocks hold potential to deliver decent growth. HSBC has identified 8 midcap stocks, which could give up to 58% returns. The Hong Kong-based brokerage argues why it considers them a safe bet.
HSBC has dispelled fears of a deeper correction in midcaps from here, like what happened in 2018 when the BSE Midcap index fell by over 13%. It said many midcap stocks have even corrected 35-50% with valuations coming down to the 5-year mean. Moreover, the midcap market breadth has declined to 73% from 90%+ at the beginning of the year (versus 60% which is the normal cycle average breadth). This signals a limited downside.
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 Nykaa as a formidable platform with its brands looking well positioned to capture the exponential growth opportunity in beauty and personal care (BPC). Following
