For moderate risk takers: 5 midcap stocks from different sectors with potential upside of up to 29%

After a short rational correction, bulls were once again seen on every corner of the street. While being bullish, it is extremely important not to forget the fact valuations are high and everything seems to be priced to perfection. In such conditions, for investors who are looking to increase their exposure to stocks, it would be better to focus on fundamentals and if there is any improvement in them which has made the overall score go up in the last one month then have a look at those stocks. These selected stocks depict a strong upward trajectory in their overall average score which is based on five key pillars i.e. earnings, fundamentals, relative valuation, risk and price momentum. This implies that there has been a significant improvement in their market outlook in the given time frame.

While nifty last week witnessed corrective movement, the overall trend is still bullish and so are the risk levels. In such times, it would be better that while looking at stocks one should also focus on reducing the risk by taking a hard look at some numbers which are critical indicators. Refinitiv’s Stock Report Plus which lists stocks with high upside potential over the next 12 months, having an average recommendation rating of “hold” or “buy” or strong buy .

Despite the recent correction, valuations are still high from every perspective. Because they have stayed at elevated levels, to some it might appear as a new normal. But the fact is that stretched valuations have never been and never will be the new normal. So, sooner or later, the street will start the process of valuation adjustment. First signs that markets are getting close to starting the process are clearly visible on the wall. Adjustment of valuations is a process, which does not end in one day, though it starts in one day. It would be worthwhile to make adjustments to the portfolio by shifting to more defensive sectors. ET screener powered by Refinitiv’s Stock Report Plus lists down mid and small cap stocks from the FMCG sector with high upside potential over the next 12 months, having an average recommendation rating of “buy” or strong buy .

Here are some simple suggestions that can help you to better weather uncertain global markets.

In equity markets, whatever precaution one might take, the probability of a mistake of getting stuck with a wrong stock is always high. But then there are mistakes and silly mistakes, just try to avoid silly mistakes. How ? Stay away from stocks where there is a narrative that this sector will do well because of ABCD reasons or the company will get such and such orders worth this much. There is enough evidence in history to show that more than anything else, checks and balances are most important at a point of time when valuations are high and sentiment extremely bullish. How do one put checks and balances? Integrate both quantitative and qualitative criteria to assess stocks, aligning expectations with realistic market performances and avoiding impulsive shifts based on short-term fluctuations.

While it is a well known fact that small caps as a segment are more prone to risks of sharp decline. However, the reality is that when small caps are doing well, all the caution is thrown out of the window. The reason is, small gains also tend to gain very sharply in a short period of time and that is what makes them attractive to investors. Given the valuations, at this point of time, it would be logical that investors should put more checks and balances while navigating the small cap space. Also beware of rude shocks which this segment of the market may witness given the fact there are more headwinds ahead.ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks, and lists stocks which fulfill the various criteria as specified into the algorithms & filters to find those which might help navigate the stock market.

After what can be described as a short phase of correction, mid-caps are once again on a roll. Both in terms of market breadth and absolute gain, midcap are leading the rally. The valuations which were high have moved even higher, so while there cannot be an argument against the liquidity, there are some safeguard which become important before one take exposure to the stocks and especially mid-caps as the correction in this space can be very brutal. ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks, and lists stocks which fulfill the various criteria as specified into the algorithms & filters to find those which might help navigate mid cap space.

If one goes by what is happening on the street today, we probably are once again going back to a situation where mid-caps are charting their own journey and bulls are backing it. While the valuations are expensive, there is no point in fighting with liquidity, if it is going to mid caps and they are moving up irrespective of valuations or quality of stocks one cannot argue. But the only thing which as an investor one can do is to be careful when taking exposure to this segment of the market. Stay away from stocks where there is a narrative of stocks doing well that are not backed by fundamentals and track record. If the market stays like this, very soon once again there will be no dearth of tips floating in whatsapp groups and telegram channels. But there is enough evidence in history to show that finally it is earnings and valuations which decide what would be the price of stock price and clues about earnings come from just two things, sector and the management. So, focus on the sector and the quality and ability of management.

Ranging from high valuation to event risks in the current quarter in terms of state elections, the global issues, both geo- political tension and high probability of hike in US interest rates. These all things were being ignored by the markets as the liquidity was ensuring that markets move upward very sharply. Finally, markets are waking up to some reality, there is a very likelihood that as adjustment of the global flows continues to happen, we might have more volatile movement. During this phase, if one is looking for investing, it might be better to stick with large caps as they would be better placed weather the volatility. ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks, and lists stocks which fulfill the various criteria as specified into the algorithms & filters to find those which might help navigate the stock market.

For all the investors who have been focussing on the midcap segment, this was a week of reality check. The way midcap stock tumbled and the way market breadth panned out it was just a reminder of two things, never ignore valuations and secondly however good the stock might be when the correction takes place, even the best of the stocks can decline sharply. For all those investors whose portfolio is titled in favor of the mid-caps need to do two things in current market conditions. First, don't extrapolate what has happened in the last one quarter to the mid caps stocks. The reason: there might be some change in the ways the flows are coming to midcap funds due to recent SEBI advisory through AMFI to fund houses. Second, which is more important, be careful when taking fresh exposure to this segment of the market and apply checks and balances.