Ten Alpha mid-cap & small-cap stocks to invest in right now

The Indian equity market has stabilised after the initial shock of the Russian invasion of Ukraine in the last week of February. The benchmark BSE Sensex is up 4.3 percent during March which is quite remarkable considering the spike in global crude oil prices and bond yields in the United States in the last month. 

The mid-cap stocks have done well and the small-cap stocks have performed even better as the BSE Small-Cap closed at 28,129 on Wednesday, up 5.5 percent during March so far. The mid-cap index lagged behind a bit and is up only 2.9 percent month to date.

One of the best ways to prosper in the current market is to invest in alpha stocks. 

A back-of-the-envelope calculation suggests that around a third of the stocks that are part of the BSE500 Index have outperformed the Sensex both in the financial year 2020-21 and in FY 2021-22. But many of them have now become very expensive on price-to-earnings and price-to-book value. Then others could see a big decline in their margins and profits in forthcoming quarters due to the recent rise in energy and metals prices.

Also Read: 5 ways to maximise returns on investment amid current economic turmoil

Here are 10 alpha mid and small-cap stocks that outperformed the benchmark index for two years in a row but remain reasonably priced and have the potential to continue to do well even in FY23. These stocks also have a healthy balance sheet and reported high returns on net worth (RoNW) or shareholders’ equity.

1. Supreme Petrochem is on the top of our list. The Mumbai-based company’s stock price is up 140 percent in the last 12-months compared to a 17 percent rise in the BSE Sensex during the period. The rally was supported by a big jump in its earnings in the post-pandemic period. But it remains attractively valued with a trailing price to earnings multiple of 14X, much lower than its return on net worth (RoNW) of 55 percent.

Also Rea: 10 stocks that have gone up despite Russia-Ukraine conflict 

2. Jindal Stainless(Hisar) Ltd is up 196.5 percent in the last 12 months thanks to a big jump in its earnings in recent quarters. The stock however remains reasonably priced with a P/E multiple of 8X and RoNW of 40 percent. 

3. Chambal Fertilisers & Chemicals is next on our list due to its stellar show in the last two years. The stock is up 87 percent in the last 12- months thanks to a rise in its earnings and a global rise in fertiliser prices due to Western sanctions on Russia and Belarus. The stock remains attractively priced with a P/E of 12.3X and RoNW of 34 percent.

Also Read: Five points to keep in mind if you plan to invest in silver ETFs

4. The Chennai-based sugar and agrochemicals maker EID Parry (India) comes next. The stock is up 36 percent in the last 12-months supported by a big jump in its earnings. But it remains a value buy with a P/E of 12.5X and RoNW of 25 percent.

5. The Vadodara-based chemical maker Deepak Nitrite is next on our list. The stock is up 34 percent in the last 12 months on top of a 329 percent rise during the 12 months ending March 2021. The stock still has some steam left given its P/E of 28X and RoNW of 40 percent in FY21. 

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6. The public sector defence and fighter jet maker Hindustan Aeronautics is next on our list. The stock is up 41 percent in the last 12 months. But it remains a value buy with a P/E of 13X and RoNW of 22 percent.

7. Sonata Software also makes it to the list thanks to its strong performance in the last two years. The stock is up 48 percent since March last year supported by high double-digit growth in its earnings. But it remains reasonably priced with a trailing P/E of 22X and RoNW of 40 percent.

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8. The public sector National Aluminium Company (NALCO) is next on our list with a 124 percent rally in its stock price in the last 12 months mirroring a sharp rise in its earnings and a global rally in the base metal stocks. Despite such a strong rally, the stock remains a value buy with a P/E of 8X and RoNW of 25 percent.

9. Chemical maker Balaji Amines is next on our list. The stock is up 62 percent in the last year in line with a strong double-digit rise in its earnings during the period. The stock has the potential to rally further given its current P/E of 27X and RoNW of 30 percent in FY21.

10. Chemical and textile maker GHCL is the last on our list of ten alpha stocks. The stock is up 137 percent in the last 12 months backed by a big jump in its revenues and profits. But it remains reasonably priced with a P/E of 11X and RoNW of 18 percent in FY21.

Happy investing!

(Advice: This article is for information purpose only. Readers are advised to consult a certified financial advisor before making investment in any of the funds or securities mentioned above.)

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).

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