Investing.com – India's mid- and small-caps have been outperforming large caps over the past two years, leaving a valuation gap at historic highs, signaling a possible near-term correction, UBS said.
The divergence in performance between the Nifty Midcap 100 and Nifty 50 indices has reached unprecedented levels, largely driven by the rerating in FY2023-24.
“Based on previous cycles, we believe the SMID correction is long overdue,” the note said, resembling the one seen in 2018-2019.
About 80% of the 20 heavy sectors tracked by UBS, including chemicals, home improvement, and stock exchanges, are trading at or above their three-year average multiples.
Top-down value strategies are challenging in the current environment, but selective bottom-up ideas with strong fundamentals still provide opportunities, UBS says.
UBS expects significant growth in… Delhivery Ltd. (NS:) express and partial truck loading business, supported by market share gains and margin improvement. The stock is rated as a buy with a target of Rs 525, which translates to an upside of 57%.
Indian Energy Exchange Limited (NS:) which is rated Buy at Rs 260, implies an upside of 49%. With a 19% year-on-year rise in trading volumes in FY25 to date, driven by green real-time markets, UBS sees IEX benefiting from renewed stringent compliance mechanisms and new product launches.
Buy Multi Commodity Exchange of India Ltd (NS:), with a target of Rs 8,000, offering an upside of 35%. UBS pointed to potential growth from increased participation and new product offerings such as weekly options and electricity derivatives. Concerns about slowing sequential growth are seen as exaggerated.
while Navin Florin International Ltd (NS:), is also rated Buy with a target of Rs 4,250, about 22% upside. Expanding the company's capacity in specialty fluorochemicals and improving margin prospects from backward integration are expected to drive revenue growth.
ramkrishna forgings ltd (NS:) has a rise of 66%. UBS is upbeat about RKFL's revenue vision from rail orders and aluminum forming projects, despite concerns about a cyclical slowdown in the commercial vehicle market.
Shyam Minerals & Energy Ltd (NS:) also offers a 53% upside. UBS cited diversification into aluminum foil for batteries and potential anti-dumping duties on Chinese imports as key drivers of the company's growth.
