We evaluated four funds that have done well over market cycles to unearth 28 mid-cap stocks for you to invest in
28-Jul-2014 •Research Desk
Would you like to eat a set thali, or do you like to choose from an a la carte menu? Or even just a quick bite from a fast food joint? You could do any of these for dining out, but when it comes to investments, Wealth Insight readers would probably like to observe the great chefs at work and learn from their recipes. And that's exactly what we have for you in this innovative feature.
At Value Research, our expertise lies in evaluating mutual funds and that's something we have been doing for over two decades. Since picking mid-cap stocks can be a challenge, we decided to observe what mix of ingredients and spices four select fund managers use to cook up their portfolios.
To arrive upon our selection of mid-cap stocks, we created a mix of quantitative and qualitative parameters. We narrowed the hunt down to four funds that have come out unscathed through the years across different markets cycles. These are Axis Midcap managed by Pankaj Murarka, HDFC Equity managed by Prashant Jain, IDFC Premier managed by Kenneth Andrade, and ICICI Prudential Value Discovery is managed by Mrinal Singh, giving the necessary variety.
In the first step, the combined unique universe of stocks that these funds invest in added up to 170 unique stocks. Of these, we excluded the large-cap stocks, which brought the list down to 132 mid-cap stocks with market cap ranging from ₹230 crore in case of Career Point to ₹20,000 crore for ABB.
We next excluded stocks that were highly over valued. We also excluded stocks where these funds were reducing their holdings as well as those where the holdings were insignificant. Finally, we also excluded companies with consistently falling RoE. This left us with a universe of 28 companies-our final list that we present here for you.
Amara Raja Batteries
The second largest lead-acid battery manufacturer in India has challenged old war horse Exide. Amara Raja has almost gained 46 per cent of the market share in the past 5-6 years. Brand Amaron has been developed with technology support from Johnson Control USA, which also has a stake in Amara Raja.
This off-road tyre maker is widely used in tractors, cranes and heavy farming equipment. Preferred for its ruggedness, quality and cost effectiveness, it has also made a reputation for itself in international markets. Balkrishna has been giving giant players like Michelin and Goodyear a tough competition.
Bata India is the largest retailer and manufacturer of footwear in India and has been an active player in the market for the past 80 years. In a fragmented footwear market that has several players and fast changing fashion trends, Bata India continues to find loyal buyers, especially among women.
A subsidiary of TCS, has its roots from maintaining IBM installations and maintenance of computers supplied by other foreign players since 1978. It continues to play a role in systems engineering, offering application design, development, testing services and asset-based solutions.
Coromandel is India's second largest phosphatic fertilizer and the subsidiary of the Murugappa Group and EID Parry. Through its 12 subsidiaries, including Sabero, the company has a worldwide presence and has also ventured into the retail markets by setting up more than 425 rural retail centres.
This Mumbai-based KPO provides data analytics and customised process solutions. The company specialises in back office services in financial and cable & telecom services. eClerx has consistently delivered a high growth with an average return on equity of 50 per cent in the past five years.
India's largest lead-acid battery manufacturer, was once the most preferred OEM suppler and a monopoly. Today, the company faces stiff competition from Amara Raja. Moreover, diversification into insurance business has partially strained its margins, but things are looking up for now.
FAG Bearings India
FAG is an OEM supplier to the automotive and engineering industry, with Indian Railways being its major client. The company has technologically capitalised on its German parent, FAG Kugelfischer and has positioned itself as a niche player making it the second largest player with 15 per cent market share.
Godfrey Phillips India
The second largest tobacco player in India, has also a significant share in the tea business. With Philip Morris, the world's largest tobacco company as one of the promoter, the company has access to new products. From focusing mostly on North and West India, it has recently entered South India and West Bengal.
Greaves Cotton manufactures industrial products specialising in diesel and petrol engines, gensets, pumpsets and construction equipments for a long time. Around 60 per cent of the revenue comes from the engine supply to the auto sector and the company is banking on the upcoming quadricycle segment.
Gujarat State Petronet
GSPL is in the natural gas transportation business through its wide network of pipelines in Gujarat. The company has planned to increase LNG capacities on a large scale by FY16 and will leverage upon the natural gas demand which is picking up through its parent company GSPC.
ING Vysya Bank
This private sector bank is expanding across the country from its earlier south-only focus. The bank has maintained its asset quality below 0.20 and has a high net interest margin of more than 3.7 and has a healthy average growth of 30 per cent in its book value in the last five years.
Karur Vysya Bank
Based in Tamil Nadu, this private sector bank will be celebrating its centenary in 2016. The bank has major operations in Tamil Nadu, Andhra Pradesh and Karnataka but in the past few years it has started expanding aggressively to other parts of the country, especially North India.
Kaveri Seed Company
This seeds company is known for its hybrid cotton seeds and its much sought after 'Jadoo' and 'Jackpot' brands that were launched in 2008. These two brands have a 40 per cent market share in Andhra Pradesh and 17 per cent nationally through its 15,000 strong network of distributors.
Watch out this space for other recommendations.