Top Small And Mid Cap Stock To Buy Trading At Deep Discount/ Premium To Nifty 50: ICICI Securities

While in the correction phase as in the current scenario, the mid caps and small caps see further beating, the current trend shows some strength or breakout in case of some of the stocks, barring today's current huge correction. As per the ICICI Direct report dated February 21, 2022, post-covid growth impulse largely emanating from mid/small caps although low valuation discount over large caps and reducing risk appetite to act as headwinds.

Top Small And Mid Cap Stock Trading At Deep Discount/ Premium To Nifty 50: ICICI Securities

Mid and small cap valuation discount over large caps in terms of earnings yield relatively low currently at around 100 bps on a TTM basis. However, they have not yet reached the extreme optimism seen during 2017-18 where they traded at a premium to large caps.

On the flip side, earnings growth of mid and small caps is expected to be much ahead of large caps (NIFTY50 index) over FY22-24 which could support their valuations.

The higher growth is attributable to the significantly larger impact of covid on mid and small cap space and the imminent opening up of the economy over the next two years which is likely to show higher growth on a depressed base. Mid and small caps have the lion's share of the most severely impacted sectors due to covid such as hotels, resorts, restaurants, cinema, casino, travel agents, travel bags, air lines, retail stores, capital goods, small banks & NBFCs.

Emerging risk - Normalisation of excessive liquidity and expected rate hikes by theUS FED will likely reduce the risk appetite of investors, thereby, demanding higher earnings yield spread from mid and small caps over large caps.

ICICI Securities Top Mid and Small Cap Stocks

Discount/ premium to NIFTY50	Earnings yield (FY24)	Midcaps	Small caps
Deep discount	>=12%	NHPC	CESC, Jindal Stainless
High - moderate discount	>=6.7% (bond yield)	Ashok Leyland, Aditya Birla Capital, Tata Communication	Equitas Small Finance Bank, CreditAccess Gramin, Genus Power, JK Lakshmi Cemen
Marginal discount	>=5%	TVS Motors, APL Apollo Tubes	Jyothy Labs, Greenpanel Industries
Premium		Phoenix Mills, Trent, Gujarat Fluoro Chemicals, Kajaria Ceramics	INOX Leisure, Sapphire Foods India, TCI Express