First, it's important to begin with a warning that smallcap stocks are risky bets and are extremely volatile. By that what we mean is that if the markets fall for some reason, the possibility of losing money can be higher than the market fall. For example, and this is just an example and not a benchmark - if the Sensex falls 5%, small cap stocks are capable of falling as much as 10 or 20%. Given that the indices have reached historically new lifetime highs, things can turn. However, here are three stocks from the smallcap space, that investors can buy. These are picked from recent brokerage reports.
Broking firm, ICICI Direct is bullish on the stock of Suven Pharma and has set a price target of Rs 560 on the stock, which is a good 17% higher from the current levels of Rs 480.
According to the ICICI Direct report, guidance for FY22 suggests a topline growth of 10-15% overall. For Contract Research and Manufacturing Services Pharma (CRAMS), the growth would be 10-15%, while for CRAMS specialty chemicals it would be 5%, while for formulations - 10-20%. Margins to be maintained between 35% and 40% minimum
Suven's topline performance was in-line with ICICI Direct's estimates whereas profitability was lower due to lower-than-expected gross margins.
Going ahead, the company hopes to achieve 10-15% growth in FY22 based on order book position. "Cautious guidance notwithstanding, we continue to emphasise on the strong execution capability and focused approach without the burden of success/failure of the innovative pipeline (now part of Suven Life Sciences). We maintain BUY with a target price of Rs 560," ICICI Direct has said in its report. A good smallcap stock, as pharma shares are likely to be more resilient in case of market shocks.
This is another stock from the smallcap space that can be bought today as the stock has been grabbing attention. The company manufactures a slew of products ranging from cables and wires, fans, lighting, switches, switchgear, pumps, appliances etc. Sharekhan has a buy recommendation on the stock with a price target of Rs 2,050, as it sees good movement from the current market price of Rs 1,800.
The broking firm sees strong manufacturing capabilities, strong distribution and leadership in categories has a big positive.
"The stock is currently trading at a price to earnings multiple of 23 time and 19 times its FY2023E/ FY2024E EPS. With a consistent improvement in balance sheet, market share gains and growth acceleration, Project Leap remains constructive in medium to long term growth outlook. Hence, we retain Buy on the stock with a revised target price of Rs. 2050," the broking form has said. The stock of Polycab was last seen trading at Rs 1,822 on the NSE.
Mphasis is a leading IT company in India. This is another small cap stock that has a buy rating from brokerage firm Motilal Oswal.
Impressive deal wins in FY21 and a healthy deal pipeline is likely to drive near term growth. While the overhang persists in the DXC business (15% of revenue in FY21), strong traction in the Direct International business should continue to drive overall performance.
The management's ability to defend margin despite supply side pressures is a key positive. The ability to win multiple large Digital transformation deals proactively and under vendor consolidation scenarios indicates strength in its sales and delivery capabilities.
Higher exposure to largely stable verticals (Banking, Financial Services and Insurance - 60% of revenue) should help mitigate risks to some extent. The stock is currently trading 21.5 times FY23E EPS. We value the stock 22 times FY23E EPS. Maintain Buy.
The shares of Mphasis last closed at Rs 1,999 on the NSE.
The above mentioned small cap stocks have been picked from brokerage reports. The author, the brokerage or Greynium Information Technologies do not take any responsibility for losses that maybe incurred. The above article is for informational purposes only.