3 High Potential Midcaps for Your 2024 Watchlist

Midcaps have the ability to adapt to changing market scenarios and new technologies, despite having less established businesses than largecaps. This is what makes them growth champions.

Midcaps hold a middle ground between smallcaps and largecaps. They're considered less risky and more liquid than smallcaps while they potentially deliver higher returns than largecaps.

In 2024 so far, select mid-cap stocks have proven their mettle by outperforming the benchmark indices.

However, there are some midcaps that have been taken to the cleaners and are currently trading at decent valuations.

In this article, we'll look at three such stocks from the midcap space. These companies could potentially rebound as they have some serious plans laid out for the next couple of quarters.

Take a look...

#1 Rajesh Exports

First on this list is Rajesh Exports, a global leader in the gold business, headquartered in Bangalore with operations spread across the world.

It's the only company in the world with a presence across the entire value chain of gold - from refining to retailing. Rajesh Exports is the largest processor of gold in the world, processing around 35% of gold produced.

As things stand now, Rajesh Exports share price keeps sinking, and investors are wondering when the stock will stage a rebound.

No Respite for Investors...

The recent downtrend comes after the company posted a 97% drop in its net profit!

Revenue declined over 30% while margins contracted to almost nil.

The recent correction has brought the company to dirt cheap valuations. Rajesh Exports currently trades at a PE multiple of 7.5x and a price to book value of 0.7x.

Keeping aside the current headwinds, Rajesh Exports is a strong contender for making a comeback in 2024.

The company has R&D units located in Bangalore & Switzerland. It also has a retail presence under its own brand "SHUBH Jewellers" with more than 80 showrooms in Karnataka.

It has a 100% subsidiary, REL Singapore PTE, which has more step-down subsidiaries.

One of its step-down subsidiaries, Valcambi, is the only refinery in the world manufacturing gold bars by a 100% robotic process without human interventions.

In November 2022, Rajesh Exports incorporated a fully owned subsidiary for energy storage solutions. The largest gold financier in the world setting up a battery facility...let that sink in.

In January 2023, Rajesh Exports signed an agreement with the union ministry and Karnataka government for a 5 GW lithium-ion cell factory.

The Karnataka government will provide Rajesh Exports with a tailor-made incentive package for the gigafactory.

In the past one year, shares have fallen over 47% and it currently trades near 8-year lows.

#2 AU Small Finance Bank

Second on this list is AU Small Finance Bank, specialising in small financing and banking services.

The bank has a long-standing track record of over two decades of being a retail-focused and customer-centric institution. It serves low- and middle-income individuals and small businesses that have limited or no access to formal banking and finance channels.

In the past three months, shares of AU Small Finance Bank have fallen over 23%. In the year gone by, shares are down around 10%.

AU Small Finance Bank - 1 Year Performance

The recent downtrend is owing to weak Q3 earnings. While its net interest income (NII) exhibited a 14.9% increase in the most recent quarter, reaching Rs 13.2 bn compared to the previous year's Rs 11.5 bn, the real setback came from the net profit.

The lender reported a 4% year-on-year (YoY) decline in net profit at Rs 3.8 bn in the December quarter (Q3FY24) due to a sharp rise in provisions and contingencies.

Going forward however, the company is optimistic as credit growth is on the rise and AU Small Finance Bank also has an impending merger with Fincare Small Finance Bank.

It has 1,049 banking touchpoints across 21 states and three union territories as of December 2023. Post the merger, around 1,292 touchpoints of Fincare SFB will be added.

Overall, the bank's larger presence in the unorganised segment gives it an advantage to pass on increased cost of funds.

#3 Page Industries

Third on this list is Page Industries, India's leading apparel manufacturer.

It is the exclusive licensee of JOCKEY International Inc. (USA) for the manufacture, distribution and marketing of the JOCKEY brand across the world.

It also holds the license of SPEEDO, an international brand for swimwear.

Over the years, Page Industries has increased its market share, becoming a dominant force to reckon with in the Indian textile industry.

However, the company has faced increased competition in recent years, both from domestic and international brands.

This has impacted its share price performance on the exchanges.

Page Industries Share Price - 1 Year Performance

Notably, direct-to-consumer (D2C) brands pose a significant challenge, along with the growing popularity of private labels offered by large retailers.

For the nine months ended December 2023 quarter, Page Industries reported a 4.7% dip in revenues. Net profit for the same period was 6.4% lower, primarily due to reduced demand.

Looking ahead, the company expects to grow on the back of the country's rising population, strong purchasing power, internet penetration, and evolving fashion trends.

This trend is accompanied by the accelerated growth of the middle-income population, rapid urbanisation, and the increased organisation of retail and online sales.

The company is undertaking various expansion plans. It is ramping up both manufacturing and sales capacity. It is also expanding its channel presence in distribution, exclusive brand outlets, large format stores, and e-commerce.

How the expansion plans pan out in the future remains to be seen.

In Conclusion

On the positive side, mid-cap stocks often offer higher growth potential compared to large-cap counterparts.

Moreover, midcaps tend to be more agile and adaptable, which can enable them to seize market opportunities and adapt to changing conditions quickly.

However, it's essential to acknowledge the downsides. Mid-cap stocks come with higher inherent risk and greater volatility than large-caps, making them more susceptible to market fluctuations and economic challenges.

Thus, investing in mid-cap stocks should be approached with caution, considering your risk tolerance and long-term investment goals.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...