Midcap stocks to buy: four midcap stocks that are about to take off

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Aditya Birla Fashion, Orient Electric, JK Cement and Indian Hotels are four mid-cap stocks that Hemang Jani, equity strategist, Motilal Oswal Financial Services, recommends investors buy at current levels. Edited excerpts from an interview:


Of the three insurance stocks – HDFC Life, ICICI Prudential and SBI Life – in which direction would you lean?
We have a very positive opinion on Max Life due to the large valuation gap. Once all regulatory issues were resolved, the gap was expected to be closed. It has started to happen now. At the same time, growth vis-à-vis other players is better for Max, so this remains our preferred choice. The other one we like is SBI Life. Despite the strong growth of their new premium collection, the stock continues to trade at a lower price than HDFC Life, which we believe is unwarranted. Thus, in the field of life insurance, our preferred choices are Max Life and SBI Life.

What is your view of alcohol as a category? Most alcohol stocks have been boosted in recent days.
We have an overwhelmingly positive view of the spirits space per se. Companies are seeing decent volume growth. Once you see a bit of normalcy or recovery in the economy, I think volume growth can improve further. This is doing well for names like United Spirits, UBL and even for smaller names like Globus Spirits, Radico, etc.

From an investment perspective, at Motilal Oswal we have a positive opinion on United Spirits due to the type of presence it has and the type of balance sheet recovery that has been carried out over the past two years. You will see more premiumization over the next 1-2 years when the margins can be much higher. It is a space where, after a long time, we witness a revival. People are underweight the sector in their portfolios. It could be a very interesting space for the next 12 months or so.

What are the top three mid-cap stocks that you would recommend buying at the current price?
In our strategy note, we offered our favorite midcap ideas.

Things were tough for Aditya Birla Fashion due to the nature of their business in the retail space. They have been extremely successful in terms of revenue growth, even during the lockdown. They have reduced their costs. So I think this company can do a lot better in the recovery phase.

There is a small company called Orient Electric, which is a consumer electronics company. We believe that in a reasonably good environment, volume growth for Orient Electric can be better than that of big players like Crompton, Havells, etc. This is something that we find very interesting.

Apart from that, we also love JK Cement. In Indian hotels, things have been so difficult, but we believe that in the next couple of years, this whole unlock theme will be in place and no reservations will be available. People will go and take revenge. I think Indian hotels might be worth a look.

The entire diagnostic space increases by 10-12%. It is a profession where the complexity is very high. Why do these actions now command PE multiples of consumer companies?
Part of that is because you only have two big guys. Besides Dr Lal Path Lab and Thyrocare, the others aren’t that big or don’t have that kind of penetration level. This opportunity can be very important in the Indian market. The market capitalization of Dr Lal Path Lab or Thyrocare is extremely low. There could be mergers and acquisitions. The overall view is positive over the entire space. We don’t have specific coverage just yet, but Dr Lal Path Lab and Thyrocare are good to watch.


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