In every game there are dark horses and the stock market is no exception. In the 2004-07 bull run, it was the mid-cap and small-cap stocks which outperformed the broad market. In this backdrop, we selected five stocks from the mid- and small-cap space that are not leaders in their respective businesses, but have built up a specialisation. The companies selected are from the sectors facing rough times, but each has the potential to ride out the depression.
Manappuram general finance
It’s a unique, non-banking finance company with lending based on gold as collateral rather than cash flow. Since it lends to the lowincome group, to some extent it qualifies as a micro-finance firm. The average size of the loan disbursed by the company is less than Rs 20,000. If you think gold as an asset class has a future, bet on this Kerala-based company. With 11 tonnes of gold as security and virtually no non-performing assets (NPAs) on a loan book of Rs 800 crore, the company now plans to merge with itself one of the promoter group companies. The group company is in a similar business of lending against gold with assetsunder-management of Rs 400 crore and has also raised capital in the recent past. The merger will enhance the merged entity’s assets and balance sheet.
Current Market Price (CMP): Rs 113.95
A key private sector player in ports, Mundra’s all-weather facility with a deep draft (17-32m) and West coast location (better rail connectivity) gives it an edge by way of customers. It has long-term agreements with leading companies like Indian Oil Corporation, Tata Power and Adani Power. The port is also seen as a hub for car exports by majors like Hyundai and Maruti Suzuki. All these factors make a stable cash flow for the company in the future. But a slowing economy in the short term raises some questions about its profitability.
CMP: Rs 385.85
As a heavy engineering company, Elecon should have been affected by the current slowdown. But its unique advantage is that most of its business comes from the government. Elecon makes coal handling equipment used in power plants. The company has an order book of over Rs 1,800 crore, with most of the jobs due to be executed over the next two-and-a-half years, keeping its earnings growing. Plus, most of the orders are based on fixed price contracts. The falling prices of inputs like steel will further help improve Elecon’s profitability. However, high interest cost brings some concerns for Elecon.
CMP: Rs 36.25
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How we did it
To arrive at the top 20 stocks to watch out for in 2009, Business Today requested broking firms to give their top 5 stock recommendations which they think will provide returns to their investors in the next few years. BT received responses from 11 stock broking firms for their top 5 picks (one broking firm suggested three stocks). These firms cater mostly to retail investors while there are some which have institutional investors, including foreign institutional investors, as their main clients. From the list of these stocks an internal team of BT zeroed in on 20 stocks. In addition, the BT team also selected five stocks which had sound fundamentals and potential to give decent returns as dark horses. They made it to the dark horses list as they have a unique business model but carry greater risk than the 20 stocks on the list.