Midcap stocks are expected to continue their outperformance against larger peers over fiscal 2024-2026, according to a note by Jefferies, which advised investors to stay selective.
The brokerage said India SMID continued to outperform in the year ended 2024 with higher return for NSE Midcap 100, which rose 23% vs Nifty, which added 9%. “This is likely driven by expectations of higher EPS growth,” the brokerage said.
NSE Midcap 100’s earnings per share is estimated to post over 20% compounded annual growth rate in FY24-26e as against 12% for Nifty 50, the brokerage said and added that in 2025, “we suggest staying selective and are bullish on India EMS, capex recovery in CY25, and housing themes.”
India electronics manufacturing services is a conviction theme for the brokerage. Amber Enterprises, Kaynes, and Dixon have rallied by 135-180% in 2024, sharply outpacing index returns (NSEMCAP up +23%). “Indian government’s focus on value-addition, China 1+ strategy and cheaper labour could drive 30%+ industry CAGER over FY24-26.”
In 2025, the brokerage is bullish on backward integration and components theme as against prescriptive OEM.
Among stocks, while Amber is its top pick given margin accretive component diversification, Syrma stays a Buy, mainly on favourable risk-reward, it said. “We recognize Kaynes niche biz model backward integration, OSAT foray, but rate it ‘Hold’ on rich valuation.”
The brokerage has ‘underperform’ on Dixon as Q2FY25 growth was mainly led by Mobiles (82% of sales), wherein company is a PLI beneficiary. “Mobile PLI tenure expires in next 2-3Y and valuation is stretched,” the brokerage said.
Among other stocks, the brokerage has a ‘buy’ on Polycab and Finolex Cables and they can be viewed as plays on capex and housing resp. The brokerage is selective in discretionary. It has a ‘buy’ on VGuard and Crompton, ‘hold’ on Havells, and ‘underperform’ on Whirlpool. The brokerage has also downgraded Blue Star to ‘hold’ post sharp rally.
On building material, the brokerage said Morbi exports in tiles were impacted In 2024 due to higher freight (Red Sea issue), exerting pressure on the domestic industry.
“We factor in volume recovery from FY26 onwards,” the brokerage said adding that it sees relatively muted volume growth in FY25, also noting the high volume base of FY23-24, especially in Supreme Industries and Astral. “Thus, we cut EPS for building product companies,” it said.
In Plastic Pipes, the brokerage estimates average 13-15% volume growth over FY25-26 and it said PVC volatility is a key monitorable.
. Read more on Markets by NDTV Profit.”We suggest staying selective and are bullish on India EMS, capex recovery in CY25, and housing themes,” Jefferies said. Read MoreMarkets, Business
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