Motilal Oswal’s top midcap, large cap stock picks: COVID recedes, demand improves, but watch earnings risk

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So far in the calendar year 2021, Nifty 50 index has added 11.5 per cent. Image: Reuters

Nifty 50 index surged over 6 per cent in May, posting a record closing high. The gains in the 50-stock index were fuelled by strong FII inflows in the second half of the month and steady decline in daily COVID-19 cases in India and strength in other Asian stock markets. So far in the calendar year 2021, Nifty 50 index has added 11.5 per cent. In April, NSE’s Nifty fell nearly half a per cent due to a resurgence in COVID-19 cases across the country. “Over the last 12 months, midcaps are up 94 per cent as compared to a rise of 63 per cent for the Nifty,” analysts at Motilal Oswal Financial Services said.

Nifty trades at rich valuations post recent run-up

The second COVID wave has now started to recede in June with the number of active COVID-19 cases down over 50 per cent since May 9, 2021 to sub-18 lakhs now. There is greater visibility on vaccine supply now as compared to April’21 and May’21. The fall in active COVID-19 cases and accelerated pace of vaccinations would boost and provide confidence in economic growth recovery in FY22E, analysts at a domestic brokerage firm said. “As states ease restrictions gradually in Jun’21, we expect the demand environment to get better. However, after the recent run-up, the Nifty now trades at rich valuations of 17.9x FY23 EPS. Thus, any misses in the FY22E earnings delivery may act as a dampener,” they added.

Top stock ideas

Large cap stocks: ICICI Bank, State Bank of India (SBI), UltraTech Cement, Divis Laboratories, Hindalco Industries, SBI Cards and Payment Services, Infosys, HCL Technologies, Mahindra & Mahindra, HUVR, and Titan Company.

Midcap stocks: Gujarat Gas, Orient Electric, Varun Beverages, SAIL, L&T Technology, Cholamandalam Investment and Finance Company, Gland Pharma, Endurance Technologies, Emami, and Federal Bank.

During May 2021, Tata Consumer, Shree Cement, JSW Steel, Hindustan Unilever Ltd (HUL), Bharti Airtel and Britannia Industries were index laggards.

Top-performing sectors in May 2021

– PSU Banks: 18%
– Media: 14%
– Utilities: 14%
– Capital Goods: 11%
– Oil & Gas: 10%

Top stocks in May 2021

– UPL: 34%
– IOCL: 20%
– SBI: 20%
– Asian Paints: 17%
– BPCL: 12%

Indian share market outperforms global markets

India emerged as the best performing market in May 2021, gaining 7 per cent. During the month, the key global markets such as India, Brazil, China, Russia, MSCI EM, Korea, UK, and the US ended 1-7 per cent higher in local currency terms. Analysts at the brokerage firm noted that in the last 10 years, MSCI India has outperformed MSCI EM by 127 per cent.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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