Investing.com — The outperformance of India’s mid- and small-caps relative to large-caps over the past two years has the valuation gap at a historically high level, UBS said, signaling a potential correction in the near term.
The performance gap between the Nifty Midcap 100 and the Nifty 50 index has reached unprecedented levels, mainly driven by re-ratings in FY2023-24.
“Based on past cycles, we believe an SMID correction is long overdue,” the note said, drawing parallels with the correction seen in 2018-19.
About 80% of the 20 SMID-heavy sectors tracked by UBS, including chemicals, home improvement and stocks, are trading at or above their three-year average multiples.
UBS says top-down value strategies are challenging in the current environment, but selective bottom-up ideas with strong fundamentals can still offer opportunities.
UBS expects significant growth in Delivery Ltd (NS:) express and partial truckload businesses, supported by market share gains and margin improvement. The stock is rated a buy with a price target of Rs 525, implying upside of 57%
Indian Energy Exchange Ltd (NS:) which is rated a buy at Rs 260, implies a 49% upside. With trading volume up 19% year-over-year in FY25 to date, driven by real-time and green markets, UBS sees IEX benefiting from strict renewable energy commitment mechanisms and new product launches.
Buy-rated Multi Commodity Exchange of India Ltd (NS: ), with a target of Rs 8,000 offers 35% upside. UBS noted potential growth due to increased participation, new product offerings such as weekly options and electricity derivatives. Concerns about a sequential slowdown in growth are considered overblown.
While Navin Fluorine International Ltd (NS:), also rated a buy, has a target of Rs 4,250, about 22% upside. The company’s capacity expansion in specialty fluorochemicals and improved margin prospects thanks to backward integration are expected to drive revenue growth.
Ramkrishna Forgings Ltd (NS:) has a growth of 66%. UBS is optimistic about RKFL’s revenue visibility from rail orders and aluminum forging projects, despite concerns about a cyclical slowdown in the commercial vehicle market.
Shyam Metalika and energy Ltd (NS:) is also offering a 53% increase. UBS pointed to diversification into aluminum foil for batteries and potential anti-dumping duties on Chinese imports as key growth drivers for the company.
