For moderate risk takers: 5 midcap stocks from different sectors with potential upside of up to 36%

In the last two months of the market, while the midcaps have done well, though the pace at which the outperformance was taking place has slowed down. So, there is a profit booking taking place in different parts and sectors. Part of this profit booking is due to the fact the valuations are high and probability that it would continue. At this point of time one should also focus on reducing risk.In reducing market risks, investors should integrate both quantitative and qualitative criteria to assess stocks, aligning expectations with realistic market performances and avoiding impulsive shifts based on short-term fluctuations. This involves a disciplined approach to examining fundamentals, particularly focusing on crucial financial ratios such as Return on Equity (ROE) and Return on Capital Employed (ROCE). These measures help in evaluating a company's efficiency and profitability, guiding investors away from making hasty decisions which are mostly done in a bullish market.

The movement of nifty and sensex needs to be delinked with what has happened in the last quarter and what might happen to mid-cap in the coming quarter. There is no way one can fight 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. Now how does one do it, simple, have a look at fundamentals and it is not very tough, having a look at some of the critical ratios like ROE and ROCE would help in committing silly mistakes. 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.

The vulnerability of the mid and small caps to correction remains since the valuations are excessive. Large caps will witness buying on declines. Investors can wait for the market to stabilise and buy high quality largecap stocks on declines, said VK Vijaykumar of Geojit Financial. The top gainers were Power Grid, Britannia Industries, Bharat Petroleum Corporation (BPCL), RIL, and LTIMindtree, while the top losers were Axis Bank, Bajaj Auto, Cipla, SBI Life and ICICI Bank.

Even as nifty corrects, more small cap stocks are joining the party and on a number of days the breadth of the small cap segment is better than large caps. Coming on the list is auto ancillary unit to logistic company. 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.

While a correction is taking place in the market and is visible in all segments of the markets. The question which needs to be asked is, why the correction is taking place. Is the reason any issue in global markets or local macroeconomic headwinds or is it just that valuations had seen a run up very sharply and now they are just correcting due to profit booking. At this point of time, the answer is the last one “ valuations”. But what about a sector where the valuations never were so high or a sector which has just seen a fundamental improvement in the operating matrix. Should that also see a correction? The fact when a broad based profit booking is happening than even the stocks and sector where are not in the over priced category will also see a correction. But probably those are the sectors which should be on the watchlist because when valuation readjustment is over, they might be the ones who would be leading the next round.

After remaining under the control of bulls, mid-cap stock witnessed a sharp correction early last week and also this week. There is some correction taking place in a few select sectors. However analysts are still bullish on select mid-cap stocks. ET screener powered by Refinitiv’s Stock Report Plus lists down quality stocks with high upside potential over the next 12 months, having an average recommendation rating of “buy” or strong buy . This predefined screener is only available to ET Prime users.

Bajaj Allianz Life Insurance's Sampath Reddy, prefers value-oriented stocks over growth and expects the market valuation to peak between 19 to 20 times PE in the coming year. Although the market valuations are slightly high, the Indian macro economy is performing well in terms of GDP growth and benign inflation, driving higher valuations. Reddy notes the shift from growth to value-oriented, higher-interest rate-sensitive utility sectors and believes it will continue.

Friday’s up move in nifty might make some think that correction is over, but give the fact that valuations are high and global markets are still grappling with possibility of hawkish stance of US fed, in such conditions, it would be better to add the words like portfolio rejig, caution, fundamentals and valuations to one’s thought process while buying stocks. Refinitiv’s Stock Report Plus which lists stocks with high upside potential over the next 12 months, having an average recommendation rating of “buy” or strong buy .

We are seeing a mean reversion phenomenon in the markets where the mid- and small-cap indices both peaked in October and are now experiencing a correction at a rate faster than the Nifty said Deepak Jasani, head of retail research at HDFC Securities. Investors display a sentiment of risk aversion and are not willing to wait longer, and hence are pulling out of the market booking profits wherever available or cutting losses.

Investing in small cap stocks is one of the toughest challenges for any investor. However, if an investor gets his decision right, the returns on investment on getting (ROI) are high. ET screener powered by Refinitiv’s Stock Report Plus lists down stocks from small cap space with high upside potential over the next 12 months, having an average recommendation rating of “Buy” or Strong Buy and also meeting some parameters like net margins and return on equity.