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Five midcap stocks very dear to the domestic equity funds have delivered up to 920 per cent returns in last three years, a period marked by strong inflows to midcap and smallcap stocks.
Together, MFs have bought Rs 1 lakh crore worth of stocks during this period. Shareholding data showed mutual funds held 26-30 per cent stakes in these five companies as of March 31, 2017.
Strong investment flows into mutual fund schemes in last three years pushed fund houses to go on a shopping spree in the hope that the Modi government’s reforms drive would trigger a rebound in earnings. This lifted valuations of many midcaps stocks to levels that are at a high premium to those of largecaps.
KNR Construction, one of the stocks mutual funds favour, has zoomed 914 per cent in last three years. Analysts say KNR Construction had a strong order backlog of around Rs 4,240 crore at the end of December quarter, which was 4.6 times its FY16 revenue, and which gave strong revenue growth visibility for the next 2-3 years.
The company had an aim to achieve over Rs 1,300 crore revenue in FY17 against an earlier guidance of Rs 1,200 crore. Besides, it has a target of Rs 1400-1500 crore revenue in FY18, implying a YoY growth of 10-15 per cent.
Mutual funds held a 26.98 per cent stake in the company as of March 31, 2017.
Shares of Indian Terrain have skyrocketed 471 per cent in last three years. The company, where MFs held a 25.23 per cent stake at the end of March quarter, clocked 21 per cent revenue growth CAGR over FY11-16.
Analysts say the company’s asset-light business model due to outsourced manufacturing has led to a high RoCE in excess of 20 per cent. They expect the company to see 15 per cent revenue growth CAGR over FY16-18E.
Sadbhav Engineering is another stock where MFs held 26.29 per cent stake as of March 31, 2017. The stock has surged 192 per cent in last three years.
“With reducing overhangs related to legacy irrigation and NHAI EPC projects on margin and WC fronts and rising share of hybrid annuity (HAM) project execution should enable margin expansion and WC improvements. Given the recent orders and potential uptick in execution, we upgrade FY18E sales, Ebitda and PAT estimates for the company by 2 per cent, 4 per cent and 22 per cent, respectively.
Shares of Equitas Holdings are up 50 per cent since it got listed on the bourses on April 21 last year. Domestic mutual funds held a 27.7 per cent stake in the company.
Shares of Astra Microwave, a defence player, have climbed 92 per cent during this period. This stock is seen gaining from potential India-Vietnam defence deal on the Akash missile.