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- Domestic cyclical recovery and global liquidity could aid midcaps in 2022
- Recommend bottom-up stock picking approach and prefer market leaders
- Top picks include Crompton Greaves Consumer Electricals. Dixon Tech and Kajaria Ceramics
Jefferies has stated in the 2022 outlook for Indian midcaps that the outperformance of 2021 still has steam left to repeat it for the next year aided by domestic cyclical recovery and global liquidity. The brokerage house has estimated FY23 Ebitda growth of +20% and sales growth of +17%. for the small and midcap stocks covered by them.
Last year the midcap index rose by 46% beating Nifty gains at 24%. Brokerage has recommended a bottom-up stock picking approach and has preference for market leaders. Top picks include Crompton Greaves Consumer Electricals. Dixon Tech and Kajaria Ceramics.
Key Focus Areas For 2022
- Housing Upcycle
Expect a robust housing activity in both urban projects and semi-urban independent housing. Despite rising costs, customers are not delaying their purchases. Government measures such as sanitation, affordable housing, pipe drinking water and rural electrification could benefit building material stocks like Astral and Kajaria Ceramics and consumer electrical companies like Havells, CG Consumer Electricals, V-Guard Industries and Finolex Cables.
Market share gain expected from market leaders as, during the pandemic, unorganized players faced a lot of constraints such as raw material sourcing, liquidity and working capital issues, funding, weak balance sheet.
- Indigenisation Push
Competitive costs for labor, energy, larger OEM outsourcing production to focus on branding and government measures like import restrictions and PLI scheme could benefit stocks like Dixon Tech and Amber Enterprises.
- Price Hike
With a view to pass-on rising input costs, many companies have raised prices over the past 3-4 quarters. While price hikes have been calibrated in appliances, sectors such as pipes, cables and wires typically allow pass-through of the volatility of raw material prices. These price hikes could cushion upcoming price hikes in coming quarters.
Key risks for 2022 include demand slowdown, supply chain issues, pricing pressures and raw material price volatility.