Diwali 2023: New growth cycle on horizon for small, midcaps, says Amar Ambani of Yes Securities, lists out 5 stock picks

Stock market today: As we celebrate Diwali 2023, a look back at the Indian stock market performance in the last Samvat Year shows optimism and resilience. The benchmark equity indices, Sensex and Nifty 50, have given decent returns since Diwali last year.

Around 55% of the NSE500 market capitalization achieved a remarkable 35% year-on-year (YoY) growth in annual net profit. A closer look reveals a significant 30% YoY growth in EBITDA (excluding Financials). 

Amar Ambani, Group President & Head – Institutional Equities, Yes Securities India noted that the optimism and resilience continued into Q2, with 240 out of 500 companies (66% of NSE500) delivering a 42% YoY growth in Adjusted PAT, an outstanding 46% YoY increase in profit before tax (PBT), and a 30% YoY rise in EBITDA. At the same time, revenue showed only a modest 2% growth. 

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These results can be attributed to increased efficiencies, a decrease in commodity prices, and a steady demand environment.

“The combination of stable yields and the Indian Rupee (INR), along with limited investment opportunities in sluggish markets like China, is anticipated to channel Foreign Portfolio Investment (FPI) into the Indian market,” Ambani said in a note.

A range of positive factors, including sustained government capital expenditure (capex), consistent private consumption driven by robust credit demand, and substantial growth in corporate earnings due to enhanced margins resulting from lower input costs and strong banking sector performance, underpin the bullish outlook for the Sensex, he added. 

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Ambani believes a new growth cycle is on the horizon for smallcap and midcap segments and expects these segments to outperform the broader market in the coming years. 

“Many of the stocks within this space hold leadership positions in their respective sub-segments, boasting extensive and visible track records. This positioning aligns them to benefit from the ongoing formalization and digitalization of the economy, cost advantages stemming from lower input expenses, improved access to credit at favourable terms, and expanding valuation multiples,” he said. 

However, he is of the view that in the near term, it is crucial to monitor unfolding macroeconomic conditions globally.

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Ambani has listed out his five Diwali stock picks. These stocks are Arvind Smartspaces, CreditAccess Grameen, Sanofi India, Arvind Fashions and CSB Bank.

Arvind Smartspaces | Buy | TP: ₹440

Arvind Smartspaces has projected strong capability to monetize its projects quickly in all the markets of its presence and is expected to generate strong cashflow in next 2-3 years. Being net-debt free and promoters having shown strong commitment to the business through three capital infusions instills trust and conviction in the company to generate long-term returns for all its stakeholders, as per Yes Securities.

The brokerage has a ‘Buy’ rating on the stock with a target price of ₹440 per share.

CreditAccess Grameen | Buy | TP: ₹2,026

CreditAccess Grameen has been consistently delivering RoA and RoE of over 5.5% and 24% for three quarters in a row. Key reasons behind the company’s stronger-than-peer profitability despite lower lending rates are better customer retention or engagement; deft opex or productivity management and firm asset quality control. 

Yes Securities believes CreditAccess Grameen is strategically positioned to harness the substantial untapped potential in the microfinance sector by expanding its presence in both new and existing geographical markets and growing its customer base. 

The brokerage has a ‘Buy’ call on the stock with a target price of ₹2,026 per share.

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Sanofi India | Buy | TP: ₹9,566

Sanofi has a strong diversified portfolio along with several top marquee brands across India. Their consumer healthcare business is on cards to become a fast-moving consumer healthcare company by enhancing the portfolio innovation, increasing market penetration. And the proposed demerger will enable Sanofi to unlock and maximize its business potential in both pharmaceuticals and consumer healthcare, Ambani said.

Yes Securities has a ‘Buy’ rating on Sanofi India with a target price of ₹9,566 per share.

Arvind Fashions | Buy | TP: ₹470

Despite a temporary dip in consumer spending, Yes Securities anticipates that Arvind Fashions will continue to meet its established goals, which include annual margin improvement of 100-150 basis points, a growth rate of 12-15%, and a return on capital employed (RoCE) of 20%, at least until fiscal year 2025. 

After achieving these objectives, the company may then contemplate other avenues for growth, said the brokerage firm.

It has a ‘Buy’ call on the stock and a target price of ₹470 per share.

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CSB Bank | Buy | TP: ₹440

The bank expects to grow its loan book 50% faster than industry with net interest margins (NIMs) bottoming out in the recently concluded quarter i.e. Q2FY24. The management is confident of delivering a NIM above 5% for full year FY24 as they believe that the rise in yield on advances will outpace the rise in cost of funds going forward. 

With strong growth capital in place and good lending practices, Yes Securities remains confident in the bank to deliver sustainable returns to all its stakeholders in the long run. 

It has a ‘Buy’ call on the stock with a target price of ₹440 per share.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.