Summary of "Top 3 Small & Mid-Cap Stocks Investors Should Watch Out For This Samvat"

Top 3 Small & Mid-Cap Stocks Investors Should Watch Out For This Samvat

Market Outlook & Macroeconomic Context

Nifty50 Target: Expected ~14-15% upside by next Diwali (Samvat 2082), reflecting optimism in domestic demand and market recovery.
Risks: Potential escalation in US-India trade tensions (e.g., aggressive US trade policies under Trump) is the main risk but considered unlikely due to geopolitical constraints.
Key Market Drivers:
- Strong domestic demand.
- Anticipated interest rate cuts.
- GST rate cuts expected to boost aggregate demand.
- Banking sector credit growth at 11-12%, driving double-digit growth in select sectors.
- Asset quality in banking close to 10-year best levels, with net NPAs low.

Sectoral Picks

Top Sectors to Watch:

Banking Strong credit growth, improving asset quality, and tailwinds from interest rate cuts.
Capital Goods Benefiting from increased capital expenditure, especially in the power sector.
Automobiles Positioned for growth alongside capital goods.

Top 3 Small & Mid-Cap Stock Picks by Mr. G Chokalingam

Oracle Financial Services Software
- Subsidiary of Oracle Corporation (market cap approx. $57 billion).
- Product-based business model, not just IT services; stable income from maintenance (~₹2,000 crore, 30% of revenue).
- Strong operating margin of 43%, rare among Indian tech companies.
- Robust balance sheet with ₹5,900 crore cash.
- Dividend track record: ₹1,120 cumulative over 5 years; ₹265 last year.
- Revenue geographically diversified: ~75% from outside the USA, minimizing US trade war risk.
- Stock correction: Down ~33% from recent highs, presenting a buying opportunity.
Wime Transformers
- Manufacturer of transformers.
- Beneficiary of record capital expenditure hikes in the power sector, especially thermal power.
- Diversified client base beyond state government/distribution companies.
- Debt-free for 20 years, with a strong cash position (~₹100 crore).
- Stock down ~50% from 52-week high, indicating a value entry point.
Bombay Burmah Trading Corporation (BBTC)
- Holds 50.5% stake in Britannia Industries.
- Trading at a steep 82% discount to the value of its investment in Britannia.
- Valuation metrics: Trading at 12x FY25 earnings.
- Positive global wheat outlook (key input for Britannia) expected to reduce input costs.
- Post-COVID management cleanup: balance sheet improved after shutting down Goer investment.
- Recently started paying dividends after decades, with two interim dividends indicating potential for more shareholder returns.
- Owns ~4,000 acres of freehold tea plantations in Tamil Nadu, adding intrinsic asset value.
- Stock down ~35% from 22-week high.
- Considered a potential multibagger by the presenter, with strong intrinsic and asset-backed value.

Methodology / Investment Framework Shared

Mr. G Chokalingam focuses on companies with:

Strong balance sheets and cash positions.
High dividend yield and consistent dividend history.
Resilience to macro risks (e.g., low exposure to US trade war).
Undervalued stock prices with significant recent corrections.
Asset-backed intrinsic value (e.g., land, subsidiaries).
Exposure to sectors benefiting from macro tailwinds (banking, capital goods, power sector).

Disclaimers

The presenter noted personal investments in Bombay Burmah Trading Corporation and compliance with company policies. Investors are advised to do their own calculations and due diligence. No explicit “financial advice” disclaimer was stated, but caution is implied.

Presenters / Sources

Mr. G Chokalingam, Founder and MD of Economics Research
Interviewers: Unnamed host and Anushi (NDTV)

Summary

Mr. G Chokalingam provides a positive outlook on the Indian equity market with a ~14-15% expected return for Nifty50 by next Diwali, driven by strong domestic demand and sectoral growth in banking, capital goods, and automobiles. He highlights three small and mid-cap stocks to watch:

Oracle Financial Services Software: Strong margins, dividend, and global diversification.
Wime Transformers: Power sector beneficiary with a strong balance sheet.
Bombay Burmah Trading Corporation: Deep value play with significant investment in Britannia and valuable land assets.

Each stock has seen recent price corrections, offering potential entry points for investors.