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The Resilient Stocks: Aiming For Higher Orbits Mid Cap and Small Cap Thematic
The Resilient Stocks: Aiming For Higher Orbits Mid Cap and Small Cap Thematic
Research Analysts
July 1, 2020
The resilient stocks: Aiming for higher orbits
As the wisdom goes in the market, there are always opportunities in every adversity which exhibit bull moves even in a rough environment. In the current
uncertain scenario, when many stocks are at multi year lows and finding opportunities is challenging, identifying such resilient stocks and riding them in a
rough environment like this will be rewarding and exciting on the other hand.
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In this report, we have tried to spot such resilient Mid caps and Small caps, where we can capture higher beta. Our thesis is built on following observations:
Nifty Midcap and Nifty small cap indices have undergone significant price correction (51% and 67% respectively from 2018 high) while time wise current
decline has consumed 26 months (no bear market in two decades lasted for more than 19 months (CY2000-2001)) This significant price/time correction has
helped indices to work out of the excesses built in bull market of 2014-2017 and most negatives now seem priced in, offering favourable risk-reward setup
Relative ratio of Mid and small cap indices/ Nifty is at cyclical low and now turning up, signifying outperformance ahead after two year bear phase
Sentiment as represented by 14-month RSI (momentum oscillator) <35, is at major cycle low, last observed in CY08 and CY13. In both instances such
readings have laid the foundation of next major bull market.
Structurally, current rally from March 2020 lows is highest quarterly gain since 2014 and sharpest in magnitude since the 2018 peaks indicating structural
turnaround, while a positive thrust in market breadth and expanding volumes, gives us confidence that worst is behind us and Mid cap and Small cap
segment is at the cusp of next major bull market signalling their outperformance ahead. Investors should pick quality stocks in the segment
Stock selection: Top Picks Time frame: Six months
We have run rigorous filters to identify such stocks that have the ability to withstand
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highest quarterly gains 26% since June
Daily Bar Chart
2014 after anchoring major corrective
Market Breadth turned phase at decade long rising trend line
18495
positive
• As a result index witnessed strongest
pullback of 42% since CY18 peak,
indicating improving structure. Hence,
Advance Decline line accumulating quality stocks would benefit
investors as risk-reward turns extremely
Quarterly Gain of 26% favourable from long term perspective
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Daily Bar Chart decline at the lower band of downward
sloping channel and staged a strongest
quarterly gains of 28% since June 2014.
Market Breadth turned Currently index resolved out of base
positive formation, indicating acceleration of
upward momentum next leg of major up
move in coming months
Advance Decline line
6401 • As a result index witnessed strongest
pullback of 50% since CY18, indicating
improving broader structure
5670
• During June 2020 Nifty small cap index
4620
Quarterly Gain of 28% have relatively outperformed the
benchmarks, despite elevated global
1362 Monthly RSI spring back from major lows of 2008 and 2013 around 30 levels and inching upward, thereby supporting our bullish • Monthly RSI spring back from major lows
stance of 2008 and 2013 around 30 levels and
inching upward, thereby supporting our
bullish stance
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2.0
1.5
0.9
0.8
0.7
0.6
0.5
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within Auto pack as it registered sharp
1453 | 1535 rally off its key support around |680,
1297 resulting in bullish double bottom reversal
pattern which augurs well
• The stock has undergone a decent time
correction over past two years which
helped it to work out of excesses built in
2015-2018 rally and made the long term
price structure more robust. We therefore
52 expect outperformance to continue
682 679 • The monthly MACD has generated
week
EMA positive cross over above its s9 period
average underscoring strong momentum
over medium term
Monthly MACD turns above its nine periods average • We expect the stock to challenge its life
Fundamental Outlook
• Balkrishna Industries (BKT) is a leading tyre manufacturer domestically in the off-highway tyre (OHT) segment which is primarily meant for exports. BKT tyres find application in agriculture
(~61% of sales), mining and other commercial activities with Europe region constituting the bulk of sales at ~51% followed by India at ~20%, the US at ~17% among others. Replacement
channel constitutes bulk of sales at BKT at 71%.
• BKT stands out in the domestic tyre space, with its balance sheet strength (net cash positive), robust EBITDA margins (25%+) and healthy return ratios matrix (20%+ RoCE). With back
integration in place (carbon black), BKT is well poised to further augment its EBITDA margin profile with near term margin guidance at ~28-30%. With early commissioning of carbon black
capacities, BKT has also started seed marketing carbon black for third party sales and is expected to clock industry leading margins in this segment at ~25%.
• With the bulk of Capex stated to complete in FY21E, BKT is well poised to generate healthy Free Cash Flows going forward in FY22E (in excess of ₹ 1000 crore). Its present average CFO yield is
placed at >5%, thereby supporting its healthy valuations.
Source: Bloomberg, Spider Software, ICICI Direct Research Recommendation initiated on i-click to gain at 09:33 on July 01, 2020
July 1, 2020 ICICI Securities Ltd. | Retail Equity Research 3
Trent (TRENT): Heading for upper band of rising channel,
underscoring strong uptrend…
Rec. Price 620.00-660.00 Target 778.00 Upside 21% Technical Outlook
• The share price is in strong up trend,
Monthly Bar Chart Target @
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The stock in strong up trend trading in a rising channel signalling 804 778 marked by a rising channel signalling
sustained demand at elevated levels sustained demand at elevated levels. The
stock during March 2020 rebounded taking
support at the lower band of the channel
and is in steady uptrend thus providing
365
entry opportunity to ride the up move
• The last one month up move is supported
by strong volume of more than double of
119 the 12 months average volume of 75 lakhs
Price rally supported by strong volume signals share per month highlighting larger
109 larger participation in the direction of trend participation in the direction of trend
• The monthly stochastic is rebounding from
oversold territory and is at the cusp of
giving buy signal thus validates positive
Monthly stochatic is at the cusp of generating a buy signal bias in the stock
Fundamental Outlook
• Trent’s flagship store format ‘Westside’ generates one of the highest gross margins in the industry (~56%). Westside continues to be one of the most successful and established franchises (97%
private label brands)
• Westside has continuously sustained same store sales growth of over 7%, outperforming peers in the industry
• Despite a subdued Q4FY20 owing to COVID-19 disruptions, Trent exited FY20 with robust revenue growth of 25.5% to | 3177.67 crore (standalone). For YTD-February, revenue grew at a robust
pace of 33% YoY
• Trent’s value fashion business under the ‘Zudio’ brand has seen exceptional ramp up with revenues growing ~2.2x in FY20. Zudio now contributes almost 14% of revenues (up 600 bpsYoY)
• The company has a healthy liquidity position with cash & current investments of ~| 840 crore (D/E: 0.1x) as on FY20. We expect store addition momentum to decelerate in FY21E, as it focuses
on maintaining liquidity to tide over uncertainties
• Healthy performance in a challenging scenario instills confidence in the business model. Furthermore, being a net cash positive company, it would be in a better position to tide over current
turbulent scenario
Source: Bloomberg, Spider Software, ICICI Direct Research Recommendation initiated on i-click to gain at 10:51 on July 01, 2020
July 1, 2020 ICICI Securities Ltd. | Retail Equity Research 3
Natco Pharma (NATPHA): at the cusp of three year long downward
sloping channel breakout area…
Rec. Price 610.00-640.00 Target 770.00 Upside 23% Technical Outlook
• The stock is currently at the cusp of a
Monthly Bar Chart 1090
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three year long downward sloping channel
Target @ | 770 breakout area and the consolidation near
upper band over past two months has
resulted in higher bottom formation.
• The lead indicator in this case is the
402 breakout on RSI which makes us
confident of an impending breakout on
price chart in coming weeks that should
accelerated upward momentum
• The volumes over past three months have
been above 12month average highlighting
rejuvenated interest amongst market
participants
Monthly RSI has broken out of falling channel acting as lead indicator of impending price breakout
We expect the stock to breakout from
Source: Bloomberg, Spider Software, ICICI Direct Research Recommendation initiated on i-click to gain at 10:57 on July 01, 2020
July 1, 2020 ICICI Securities Ltd. | Retail Equity Research 3
Deepak Nitrite (DEENIT): The stock is in secular up trend…
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trend and has been trading in a rising
sustained demand at elevated levels Target @ 570
channel since CY 2016 highlighting
sustained demand at elevated levels. It has
recently rebounded taking support at lower
298 band of the rising channel which also
310
confluence with the rising 12 months EMA
(at | 404) indicating strength
206
Sharp rebound from the lower band • The stock has been one of the major
of the rising channel and 12 months outperformer and has formed a fresh all
EMA indicating strength and time high (|567) in the first week of May
continuation of positive momentum 2020 and has been consolidating since
76 then in the last eight weeks thus forming a
higher base for the next leg of up move
• It is expected to maintain its
Weekly MACD in up trend and is seen diverging from its nine periods average thus supports outperformance and resume up move after
Fundamental Outlook
• Deepak Nitrite is a leading manufacturer of organic, inorganic, fine and specialty chemicals.The company`s product range includes a spectrum of chemicals which caters to a wide range of
industries including Colourants, Agrochemicals, Pharmaceuticals, Rubber, Speciality & Fine chemicals
• The company has presence into basic chemical, fine & specialty chemical, performance chemical and phenolics. Deepak phenolics sells phenol in the domestic market
• Deepak phenolics has phenol capacity of 2 lakh tonne and acetone capacity of 1.2 lakh tonne. The company recently entered into IPA through acetone route. With recent increase in the demand
of IPA, we expect the company can likely to benefit in the medium to long term given that domestic IPA demand is pegged at 1.8 lakh tonnes annually. However we expect the benefit can not be
materialised in the near term given that government has fixed the maximum price of IPA in the domestic market owing to Covid-19
• We expect recent increase in the acetone prices can aid performance of the company in coming quarters. Further, the management also plans to enter into few derivatives in the years to come,
which should likely to aid specialty share going ahead and thereby can support the operational performance
Source: Bloomberg, Spider Software, ICICI Direct Research Recommendation initiated on i-click to gain at 09:30 on July 01, 2020
July 1, 2020 ICICI Securities Ltd. | Retail Equity Research 3
Multi Commodity Exchange of India (MCX): Breakout from a multi
year trendline augurs well for the next leg of up move….
Rec. Price 1180.00-1260.00 Target 1510.00 Upside 22% Technical Outlook
Price consolidating above the major long term trendline breakout area signalling • The share price has registered a resolute
Monthly Bar Chart
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higher base formation for the next leg of up move Target breakout above the falling trendline joining
1618 @1550 the highs of CY’12 (| 1618) and CY’16
1420 1398 (1420) and is seen consolidating above the
same as can be seen in the adjacent chart
signalling higher base formation and offers
fresh entry opportunity.
815
• The stock has major support at | 1120
644 levels being the value of the rising 200
Major support at 1120 as it is: days EMA
- 38.2% retracement of the last 3 months up move (| • Among the oscillators the monthly MACD
815-1368) remain in uptrend and is seen sustaining
- The breakout area of May around | 1130-1150 levels well above its average signalling strength
238 - The rising 200 days EMA 1121
• We expect the stock to resume up move
Monthly MACD in up trend sustaining well above its average, indicating positive bias after the last four weeks consolidation and
is gradually head towards | 1510 as it is
Source: Bloomberg, Spider Software, ICICI Direct Research Recommendation initiated on i-click to gain at 10:00 on July 01, 2020
July 1, 2020 ICICI Securities Ltd. | Retail Equity Research 3
Rallis India (RALIND): Five years consolidation breakout signifies
structural turnaround…
Rec. Price 250.00-272.00 Target 325.00 Upside 24% Technical Outlook
• The share price anchored 2018-20 decline
Monthly Bar Chart Target @ 325
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A five year consolidation breakout signals structural turnaround and offers fresh entry opportunity (| 290 – 140) at key support of January
290 2016 low | 142 and witnessed a faster
270
retracement as over past three months
stock almost entirely retraced preceding 28
months decline (| 290 – 125), indicating
robust price structure in turn suggesting
structural turnaround, thereby offering fresh
entry opportunity
140 125 • Structurally, stock have resolved out of five
A Faster retracement years consolidation (|270-140), indicating
acceleration of upward momentum,
Strong volume at the breakout area highlights larger in the direction of trend auguring well for next leg of up move
• We expect the stock to form a higher base
after recent sharp up move and eventually
Monthly 14 periods RSI is rebounding taking support at its nine periods average accelerate upward momentum towards |
Fundamental Outlook
• Rallis India is an agrochemical company with a presence into insecticide, herbicide and fungicide. The company also sells seeds under Metahalix
• The company derives around 60% of the agrochemical revenue from domestic market while the rest has been dispersed from the geographies such as North America, Europe, Africa etc. while
the seed business revenue comes from the domestic market only
• Going ahead, we expect since the company is more focused to backward integrate its few technical portfolio to aid export revenue along with reduce dependence from imports, it can witness
gross margins expansion in medium term. Further, the company’s seed portfolio is primarily focused to Kharif season, which the management has been planning to expand to some Rabi crop.
This should diversify the revenue stream in the years to come
• Further, the company has been doing CRAMS for 2 molecule presently, which it is planning to expand to few more molecules in the coming period. Any positive progress towards that should aid
operating margin mix in medium to long term
Source: Bloomberg, Spider Software, ICICI Direct Research Recommendation initiated on i-click to gain at 09:35 on July 01, 2020
July 1, 2020 ICICI Securities Ltd. | Retail Equity Research 3
Bajaj Electricals (BAJELE): A falling channel breakout signifies
acceleration of upward momentum…
Rec. Price 370.00-400.00 Target 470.00 Upside 22% Technical Outlook
• The stock has witnessed a Change of
Weekly Bar Chart A falling channel breakout signals strength and acceleration of the upward momentum
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705 Polarity as previous resistance area of |
260-280 has reversed its role and acting
587 Target @ as support. During Mar’20 the stock
470 rebounded taking support at the previous
resistance area can be seen in the
52 Weeks adjacent chart
EMA • It has recently generated a breakout
above the falling channel containing the
Change of Polarity previous resistance entire price decline since Apr’19 high (|
area is acting as support 260
587) signalling strength and offers fresh
entry opportunity
• The weekly 14 periods RSI is in positive
trend and is seen sustaining above its nine
Weekly 14 periods RSI in positive trend sustaining above its nine periods average periods average
• We expect the stock to continue with its
Fundamental Outlook
• Bajaj Electricals Limited (BEL), a leading consumer durable company in India with annual turnover of ~₹ 5000 crores (FY20). Bajaj Electricals business is spread across – Consumer Products
(Appliances, Fans, Lighting), Exports, and EPC (Illumination, Transmission Towers and Power Distribution)
• The consumer business contributes ~60% of revenue and recorded a revenue growth of ~13% YoY in FY20, despite loss of sales for almost 10 days during the lockdown. The growth is largely
driven by dealer addition and gain in market share in the fan and water heater segment. We believe, the growth momentum in the consumer facing business likely to continue given Bajaj’s strong
presence in the semi urban and rural markets where the impact of covid-19 infections are very limited
• Bajaj’s E&P segment revenue declined sharply by 52% YoY in FY20 along with a reduction in order intake (| 4844 crore in FY19 vs. | 1740 crore in FY20). The management plans to reduce the
power distribution business in FY21E-22E by focusing on TLT and illumination (relatively better margin and asset turns)
• Limited exposure in E&P business and improving profitability of CD business would help in driving EBITDA margin of the company going forward
• The company did manage to improve D/E from 1.5x in FY19 to 0.6x in FY20 by substantial repayment of debt. As a result, interest cost declined ~14% in Q4FY20. The company plans to reduce
debt by ~ | 300 crore by FY21E and refinance existing debts by issuing NCDs that would reduce interest cost substantially, going ahead. We believe focus on strengthening balance sheet
condition and rising proportion of CD business bodes well for BEL given its strong rural presence.
Source: Bloomberg, Spider Software, ICICI Direct Research Recommendation initiated on i-click to gain at 10:30 on July 01, 2020
July 1, 2020 ICICI Securities Ltd. | Retail Equity Research 3
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Appendix 1
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Sr No Scrip Name YTD Returns (%) Sector
(Rs Crores) 52W High(%)
1 Chambal Fert. 5962.18 -5.9 -22 Agri Input
2 Coromandel Inter 22094.22 41.6 -3 Agri Input
3 P I Industries 21058.02 5.5 -10 Agri Input
4 RCF 2603.98 1.1 -21 Agri Input
5 Rallis India 5043.55 54.2 -8 Agri Input
6 Amara Raja Batt. 10954.21 -11.5 -21 Automobiles and components
7 Balkrishna Inds 24058.32 25.6 -5 Automobiles and components
8 CEAT 3705.23 -7.4 -16 Automobiles and components
9 Escorts 12668.03 64.1 -2 Automobiles and components
10 Manappuram Fin. 12910.07 -13.9 -22 BFSI
Note: 1) Stocks with Bold and Italic font in above table are our recommendations
2) The list of stocks enlisted in the above report is selected on the basis of certain statistical and technical models. This report recommends only 7
(seven) stocks indicated in the report and other stocks are mentioned only for analysis purpose
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Sr No Scrip Name YTD Returns (%) Sector
(Rs Crores) 52W High(%)
19 Jubilant Food. 23082.7 5.9 -11 Consumption
20 Radico Khaitan 4847.96 15.8 -17 Consumption
21 Tata Consumer 35622.58 20.3 -5 Consumption
22 Trent 23163.56 23.6 21 Consumption
23 Ajanta Pharma 12532.46 47.4 -10 Healthcare and Pharmaceuticals
24 Alkem Lab 28142.01 16.9 -18 Healthcare and Pharmaceuticals
25 Apollo Hospitals 18991.28 -5.3 -24 Healthcare and Pharmaceuticals
26 Glenmark Pharma. 13199.83 34.6 -18 Healthcare and Pharmaceuticals
27 Ipca Labs. 21254.95 48 -9 Healthcare and Pharmaceuticals
28 Jubilant Life 10347.33 21 -7 Healthcare and Pharmaceuticals
Note: 1) Stocks with Bold and Italic font in above table are our recommendations
2) The list of stocks enlisted in the above report is selected on the basis of certain statistical and technical models. This report recommends only 7
(seven) stocks indicated in the report and other stocks are mentioned only for analysis purpose
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Sr No Scrip Name YTD Returns (%) Sector
(Rs Crores) 52W High(%)
36 India Cements 3859.77 74.4 -11 Infrastructure
37 Ircon Intl. 4194.7 11 -26 Infrastructure
38 J K Cements 10525.87 16.5 -10 Infrastructure
39 K E C Intl. 6871.97 -11.5 -25 Infrastructure
40 Timken India 7117.57 2.6 -14 Infrastructure
41 MOIL 3392.6 -2.4 -16 Metals
42 Guj.St.Petronet 12247.56 -1.1 -18 Oil and Gas
43 Indraprastha Gas 31111.54 3.8 -17 Oil and Gas
44 Mahanagar Gas 10308.94 -2 -15 Oil and Gas
45 EID Parry 5074.45 42.2 -2 Others
Note: 1) Stocks with Bold and Italic font in above table are our recommendations
2) The list of stocks enlisted in the above report is selected on the basis of certain statistical and technical models. This report recommends only 7
(seven) stocks indicated in the report and other stocks are mentioned only for analysis purpose
Road No 7, MIDC,
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research@icicidirect.com
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