Considering Buying the Dip? Here Are Mid-Cap Stocks to Watch

Mid-cap stocks have gained significant attention amid global turmoil impacting equities worldwide, and India is no exception.

On Monday, the BSE MidCap Index plunged by 3.60%, a sharper decline than the benchmark Sensex’s 2.74% drop. This marked the steepest single-day fall for both indices since June 4.

Currently, the MidCap index trades at high valuations, with a one-year forward P/E ratio of 30.11x compared to its 10-year average of 25.83x. The index has surged over 45% in 2023 and 25% in 2024. To navigate this volatile stock market, Moneycontrol consulted analysts from Motilal Oswal Financial Services and Asit C Mehta Financial Services for their top three mid-cap stock picks amid this decline.

1. Atul (Target Price: ₹9100)
   The end-user market demand has risen, and we expect overall demand to increase in the second half of FY25. The company is undertaking projects to improve plant efficiencies, expand capacities for key products, debottleneck existing capacities, capture a higher market share, and expand its international presence. ATLP plans to commission its liquid Epoxy resins plant of 50ktpa capacity in FY25 (revenue potential of ₹8 billion). The Caustic Soda plant (300 tpd) resolved initial issues in December 2023, leading to better performance in Q1 FY25. Anaven (Monochloro Acetic acid) aims to optimize plant utilization in FY25 due to improved offtake.
2. Kaynes (Target Price: ₹5000)
   Kaynes, a leading IoT-enabled integrated electronics manufacturer, has shown strong order book growth, with significant contributions from Box Build (42% in FY24) and PCBA (55%). The company secured major long-term orders in Aerospace, Industrial & EVs, and Medical sectors, promising growth in FY25. It also received a significant two-year Industrial order for FY26/FY27. Additionally, a major medical equipment provider qualified Kaynes to supply in the US and EU, expecting substantial revenue.
3. KEI (Target Price: ₹5230)
   The outlook for both the auto and industrial segments remains positive with healthy order inflows in solar, railways, power, and traction segments. Management aims to increase export contributions to 20% over the next 5-6 years. The lead acid battery business is witnessing good demand in both auto and industrial segments, with EXID expected to benefit significantly. The LAB business remains strong, but the foray into the lithium-ion segment presents challenges in the long run. The demand outlook is strong in both domestic and export markets, with good traction in Europe and US markets.

Narendra Solanki, Head of Fundamental Research at Anand Rathi Shares and Stock Brokers, provides additional recommendations:

1. Crompton Greaves (Current Market Price: ₹424, Target Price: ₹552)
   Crompton Greaves Consumer Electricals Limited is a prominent Indian consumer company with a 75-year brand legacy. In Q1, revenue rose 13.4% year-over-year to ₹21.4 billion. ECD revenue increased by 20.8%, while Lighting revenue grew by 1.9%, and Butterfly’s revenue fell by 18.8%. The gross margin expanded by 106 basis points due to cost savings, price hikes, and a better product mix. Despite a 29% increase in ad spending, the EBITDA margin grew by 97 basis points. Lower interest costs boosted net income by 28.2% to ₹1.5 billion. Fan sales grew 16% year-over-year, driven by a 15% volume increase, with strong demand for TPW and ceiling fans. Management believes they have outpaced industry growth, raising market share to 28-29% from 26-27% a few years ago. We maintain our Buy rating, raising the target price to ₹552 based on 47x FY26e earnings. We project a 13% revenue CAGR and a 31% net income CAGR from FY24-26, resulting in RoCE growth from 14.4% to 23.5%.
2. Sumitomo Chemicals Limited (Current Market Price: ₹499, Target Price: ₹570)
   Sumitomo Chemical India Ltd. (SCIL) is a leading industry player with a balanced portfolio of technical and formulation products, complemented by backward integration for some items. Stable raw material prices, liquidation of high-cost stocks, and better procurement efficiencies in Q1 boosted the gross margin by 780bps year-over-year to 38.9%. In FY24, the company introduced six new agrochemical brands. We maintain our Buy rating with an increased target price of ₹570 based on 42x FY26e EPS.
3. Mahanagar Gas Ltd. (Current Market Price: ₹1,801, Target Price: ₹2,264)
   Mahanagar Gas Ltd. (MGL) showed a Q1 EBITDA of ₹4.2 billion, up 6% quarter-over-quarter but down 19% year-over-year. PAT was ₹2.8 billion, increasing 7% quarter-over-quarter but decreasing 22% year-over-year. The company is open to new marketing initiatives to drive volumes. We maintain our Buy rating with a higher 12-month target price of ₹2,264.