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Global cues in the form of geopolitical crisis, surging oil prices amid higher interest rates and the Lok Sabha election 2024 has kept the Indian markets on edge in calendar year 2024 (2024). The small-and midcaps, too, have borne the brunt of investor's selling.
In a recent note, global research and broking firm CLSA has shortlisted 36 mid-and small-cap stocks in the Asia Pacific (APAC) region in a recent report and rated them as a 'buy'.
As a firm, CLSA covers stocks worth $17 trillion in market-capitalisation (market-cap) across the Asia-Pacific region. Within that amount, CLSA said, are with $2.9 trillion worth of small-and midcap companies (market-cap less than $10 billion), $1.2 trillion (36 companies) of which are rated buy.
“The group is diverse from a country and sector perspective. From small things big things grow – indeed the group has an average earnings per share (EPS) growth rate of 21 per cent in 2024 and 37 per cent in 2025 (at an average PER of 14.4x),” CLSA said in a recent report.
Here are top midcap and small-cap stocks in the Indian context that CLSA is bullish on.
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Fino Payment Bank: Fino is one of the six payment banks operational in India and is now looking to become a small finance bank (SFB). It reported a net profit margin of 6.7 per cent, up 20 basis points (bps) in the March 2024 (Q4-FY24) quarter, while gross margin declined slightly to 31.9 per cent. Deposit and cash management, CLSA said, were among the key growth drivers for Fino Payment Bank in Q4-FY24.
“The management has guided for over 20 per cent revenue growth and over 30 per cent profit before tax (PBT) growth for the following years. We maintain 'buy' recommendation but lower our target price from Rs 410 to Rs 370,” wrote Shreya Shivani, Piran Engineer and Kushagra Goel of CLSA in the report.
Max Financial: Axis Bank's life insurance joint venture (JV), according to CLSA's estimates, has delivered the highest premium growth among listed players in fiscal 2023-24 (FY24). Axis Bank, it said, has been the among fastest sellers of life insurance with over 20 per cent compounded annual rate of growth (CAGR) in the past 5 - 7 years and recent developments lend greater confidence on Max Life's growth / market share outlook.
"The stock is trading at its bear-case scenario with low growth, despite delivering industry-level growth in the past decade. Max Life is a bank-backed insurer and current valuations are inexpensive, in our view. We raise Max Life stock's target price from Rs 1,225 to Rs 1,400 implying 2.2x FY26 PEV. It is our top pick in the insurance sector. Maintain 'buy'," the CLSA report said.
Sula: With over 50 per cent market share, Sula, according to CLSA, is the market leader for wines in India and is best placed to catch-up in penetration for wines relative to the other alcoholic beverages. The firms’ healthy Ebitda margin allows it to invest in category development, which, CLSA believes, is key for long-term growth.
“With a rising middle class and fast income and restaurant growth, we believe wine consumption will expand at 15 per cent CAGR over the next 10 years and Sula will be the biggest beneficiary. We forecast Sula’s revenue to enjoy a 20 per cent CAGR between FY23 – 33. Maintain buy recommendation with a price target of Rs 819,” the CLSA note said.
Embassy REIT: Embassy REIT, CLSA said, is targeting net operating income (NOI) growth of 8 – 12 per cent and distribution per unit (DPU) growth of 5 – 8 per cent in FY25, in line with their estimates. It expects occupancy to reach 89 per cent by March 2025, versus 85 per cent in March 2024.
DPU growth, the research and broking house believes, will lag NOI growth in FY25 mainly due to an increase in interest expense, off revenues in FY24 and working capital. “We retain our estimates and DDM-based target price of Rs 410. With a distribution yield of 6.4 per cent and TSR of 20 per cent, we maintain a buy recommendation,” CLSA said.
