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updated on 21 April 2017
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Top mid cap and small cap stocks what fund managers shortlisted in March
High returns from mid and small-cap stocks in the last couple of years have boosted flows from retail investors into schemes that invest in these companies. With a mandate to buy mid-caps and micro-cap stocks, fund managers have no choice but to look for small-cap companies with market capitalisation between Rs 800 crore and Rs 3,000 crore.
Fund managers have identified niche ideas with visibility of earnings growth over the next couple of years. In March, fund managers identified stocks which entered their portfolios for the first time. Steel Strip Wheels, Pokarna, Zee Learning, Sunteck Realty, and Srikalahasti Pipes are unique new entries into mutual fund portfolios.
One of the key reasons for interest is the completion of its three large and landmark projects in the Bandra Kurla Complex area in Mumbai, which are expected to generate high cashflows. The company has already sold 75% of its inventory in those projects and given the large-ticket sized apartments, it has received `2,500 crore up-front. The company expects high demand for its remaining 25% inventory.
This 25% of the unsold inventory at BKC projects is expected to generate strong cash flows for Sunteck in the current fiscal.This will provide the Mumbai-based realtor with sufficient liquidity for its future projects.It has another project in Goregaon, a suburb in Mumbai. Analysts believe that Sunteck can generate additional `3,200-3,500 crore net cash from these two projects.
A leading manufacturer of granit blocks and slabs, close to 85% of its sales is export driven.It exports to more than 50 countries with the US contributing more than half of its sales.Analysts believe the company will benefit from the increase in preference for quartz in the construction industry globally.
To make the most of this, the company has announced its plan to expand its quartz capacity by 130% with a capital outlay of `325 crore. As part of a restructuring, it is open to options of restructuring, selling, leasing or disposing off its apparel business.
Ductile iron (DI) pipes are gaining preference over cast iron and mild steel pipes. With a thrust on investment in water and sanitation infrastructure, demand for DI pipes is likely to receive a boost. Only 33% of India's population has access to improved sanitation. With the governments focus on improving water supply and sewerage infrastructure and thrust on schemes like Swachh Bharat Mission and Smart Cities, demand for DI pipes is likely to increase which is likely to drive growth over the next couple of years.
The company has a 15% market share on pan-India basis; while in southern & western markets, it enjoys about 75% market share. Analysts believe it is well positioned to sustain margins despite a sharp rise in the cost of key inputs on the back of price escalation clause in contracts.
Increasing preference for pre-school education works immensely in favour of Zee Learn, which is a leading player in the segment known for its brands Kidzee and K-12 Schools. It is estimated that pre-school segment in India is valued at $2.5 billion. Of this, the branded segment forms 33.8%. Interestingly, Zee Learn's brand Kidzee has 33% of the branded segment. It is estimated that close to 29% of India's population is
between the age group of 0 and 14. And the penetration of pre-school segment is a meagre 2.5% and analysts estimate that 11.5 crore children will need 15 lakh pre-school centres.At present, India has only around 30,000 pre-school centers. Being the leader in branded segment, Zee Learn is expected to benefit from this increasing pie of pre-school segment, which is expected to grow to $3.4 billion by 2020.
Steel Strips Wheels
In addition to the company's focus on alloy wheels in the export market, it is also a beneficiary of the growth shift happening from steel wheel rims to alloy wheels across all variants of passenger vehicles in the domestic markets.
The company counts Tata Motors, M&M, Nissan among others as its major customers. Analysts believe the market size for alloy wheel market to be 5 million units for the passenger vehicle segment, of which 45% is met through imports. With a low penetration of 20%, growth visibility looks strong in the coming years.