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Global brokerage firm Jefferies is bullish on Crompton Greaves, Blue Star, KEI Industries, Supreme Industries, Kajaria Ceramics, Ramco Cements, Oberoi Realty, Sobha, IPCA Labs, Max Healthcare, Emami, Bharat Forge, Mahanagar Gas and Newgen Software in the midcap space.

Of late, the domestic equity markets have witnessed a sharp pullback since June 1 with the onset of unlocking and business resumption activity in the country. Historically, a phase of disruption has been followed by outperformance in broader markets (2009, 2016, 2017).

The trend has continued with Nifty Midcap and Smallcap indices outperforming Nifty 50 in CY20 and YTD CY21. On a year-to-date basis, Nifty, Nifty Midcap 100 and Nifty Smallcap 100 have advanced 8%, 17% and 19%, respectively.

“Earnings growth could be aided by a cyclical recovery in property, electrodes, autos, select industrials and healthcare stocks,” Jefferies said.

Overall, the Nifty Midcap 100 index has sharply rebounded by 77% during June 1 and March 10 and now trading at 24 times forward price-to-earnings (P/E) which is 29% and 53% premium to its 5-year and 10-year historical average.

The benchmark Nifty50 has gained 54%, while Nifty Smallcap 100 has jumped 104%. Price-to-earnings of Nifty 50 index now trades at decadal high which is 24% and 37% premium to its 5-year and 10-year historical average.

However, the Nifty Smallcap index trades at a 10% and 20% discount to Nifty and Nifty Midcap, respectively.

“We recommend a bottom-up stock picking approach in small and midcap space. Key growth catalysts could be government initiatives like infrastructure, water, housing revival, market share gains, new product launches and balance sheet strength,” Jefferies added.

Jefferies has a ‘Buy’ rating on Crompton Consumer and Blue Star with a price target price of Rs 490 and Rs 1,000, respectively. It has set a target of Rs 650 for KEI Industries, Rs 2,360 for Supreme Industries, Rs 1,085 for Kajaria Ceramics and Rs 1,100 for Ramco Cements.