Two BSE 200, small shares to be bought for 6 months; strong fundamentals suggest a recovery over the next two quarters

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The S&P BSE 200 and S&P BSE SmallCap outperformed equity benchmarks, rising 0.43% and 0.72% respectively. Image: Reuters

BSE Sensex and Nifty 50 have gained nearly 10 percent so far this year to set new records. However, amid rising bond yields, surging COVID-19 cases and concerns over soaring commodity prices, stock indexes are now up nearly 4%, wiping out most gains made after the budget rally. Even though corporate profits for the third quarter were better than Street’s estimates, analysts are advising investors to remain cautious and take a “buy-to-dip” approach. National brokerage firm HDFC Retail Research has started hedging S&P BSE 200 Dalmia Bharat and S&P BSE SmallCap stock Mastek Ltd. shares. respectively.

Mastek Ltd: Computer software products company Mastek Ltd expects strong growth from multi-year transactions driven by the integration of Evosys and its ability to deliver end-to-end solutions. The brokerage firm noted that the cloud services market continues to grow faster than traditional IT segments and Mastek saw a healthy opportunity in the industry’s digital transformation phase. The acquisition of Evosys has helped the company diversify its geographic presence, its range of products and services, as well as the diversification of its customer base. Market share gains through inorganic expansion are expected to drive the long-term growth of the company.

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Abdul Karim, fundamental research analyst, HDFC Retail Research, said the basic fair value of the stock is Rs 1,273 (12.5x BPA FY23E) and the fair value of the bullish stock is Rs 1,374 ( 13.5x EPS FY23E) over the next 2 quarters. Investors are advised to buy the stock on the troughs of the Rs 1118-1122 band (11.0x BPA FY23E) and add more on the troughs to the Rs 1016-1020 band (10.0xFY23E EPS). “At LTP of Rs 1172, the stock is trading at 11.5x FY23E EPS,” Karim added.

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Dalmia Bharat Ltd: Dalmia Bharat is the fourth largest cement producer in India with a capacity of 26.1 MTPA. Jimit Zaveri, Fundamental Research Analyst, HDFC Retail Research, expects the Covid-19 lockdown and economic slowdown to lead to moderate volume growth for Dalmia Cement for fiscal year 21. The industry is heavily dependent on the real estate sector and infra, which should be impacted due to the expected slowdown in the economy.

Zaveri believes that Dalmia Bharat will likely benefit from significant market share gains in southern India and eastern India. In addition, increasing the capacity of cement and better use to fuel growth. The brokerage firm expects 10% CAGR growth in revenue and 55% CAGR of EPS in fiscal year 20-23E. The baseline fair value of the stock is estimated at Rs 1,480, while the fair value of the bull case is Rs 1,590. Investors are advised to buy the stock on troughs at Rs 1,370 and add more on the troughs at Rs 1,260 each.

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(The stock recommendations in this article are made by the respective research and brokerage firm. The Bharat Express News Online assumes no responsibility for their investment advice. Please consult your investment advisor before investing.)

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