SEBI's New Rule | 5 Mid & Small Caps with 30-50% Upside Potential


4 min read
SEBI's New Rule | 5 Mid & Small Caps with 30-50% Upside Potential

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The New Rule:

On 10 Sept, SEBI has made two big changes to allocations by multi-cap mutual funds;

1) 75% of total assets of multi-cap funds will now have to be invested in equity and equity-related instruments versus the earlier threshold of 65%.

2) This 75% must be equally split over large-, mid- and small-cap companies.

(Mutual funds have up to February 2021 to meet these new allocation norms.)

Why It's a BIG NEWS?

As per it's name, Multicap funds must be investing all across the market cap (Large, Mid & Small) but lot of mutual funds were just using the name Multicap but had a large cap bias and were still investing mainly in Largecaps. It was against the basic philosophy of the fund. So, to meet the new norms, they will have to reallocate a big chunk of funds from their Largecap holding to Small & Midcap stocks, as they have got no option now.

Earlier there were no guidelines on how multi-cap funds were allocated across segments.

As per data below, Rs 40,000 crore will be transferred from Largecap to Mid & Smallcap stocks. Out of this Rs 13,000 crore will go to Midcap and and Rs 27,000 crore to Smallcap stocks.


So, Yes! It's a big news for Investors, especially if you are interested to invest in mid & small caps.

5 Mid & Small Caps Stocks with 30-50% Upside Potential

While selecting the stocks during Covid-19 this checklist must be your utmost priority which selecting any stock:

Clean Balance Sheet | No/Minute Debt | Considerable Free Cash Flow | No Pledged holdings | Good Growth Potential

Based on that here are the filtered stocks you can consider:

Small Caps:

1) KEI Industries Ltd (Current Price: 356 Rs, Target: 450, Tenure: 3 to 6 months)

Established in 1968, KEI Industries is engaged in the business of manufacturing, sale and marketing of all range of holistic wires & cables solutions with a global presence.. Company has delivered good profit growth of 51.04% CAGR over last 5 years.

Fundamental Analysis:

Market Cap:  3,226 Cr. | Stock P/E: 13.07 | Debt to equity: 0.24 | ROCE: 28.12 % | ROE: 22.44 % | Free cash flow 5years:  628.42 Cr. | Interest Coverage: 3.71 | Inventory turnover ratio: 4.01 | Pledged percentage: 0.00 %


2) Rallis India Ltd. (Current Price: 295 Rs, Target: 350, Tenure: 3 to 6 months)

This Tata group company is engaged primarily in the business of manufacture and marketing of Agri Inputs. As I have explained in one of my previous article After Boycott china movement, there is a huge investment opportunities in agro chemical sector.

Fundamental Analysis:

Market Cap:  5,750 Cr. | Stock P/E: 28.09 | ROCE: 16.31 % | ROE: 12.92 % | Free cash flow 5years:  813.21 Cr. | Debt to equity: 0.06 | Interest Coverage: 40.83 | Inventory turnover ratio: 2.02 | Promoter holding: 50.09 %


3) L&T Technology Services Ltd (Current Price: 1512 Rs, Target: 1850, Tenure: 3 to 6 months)

L&T Technology Services is a leading global ER&D services company with a client base comprising 69 Fortune 500 companies and 51 of the worlds top R&D spenders. The Company offers design and development solutions to clients across the entire value chain of product development and caters to all major industries including transportation, industrial products, telecom & hi-tech, medical devices and process industries.

Fundamental Analysis:

Market Cap:  15,934 Cr. | Stock P/E: 21.77 | ROCE: 42.59 % | ROE: 31.26 % | Debt to equity: 0.01 | Interest Coverage: 26.79 | Free cash flow 5years:  2,290 Cr. | Promoter holding: 74.60 % | Pledged percentage: 0.00 % | Company has delivered good profit growth of 21.42% CAGR over last 5 years

Midcaps:



4) Mahanagar Gas Ltd (Current Price: 908 Rs, Target: 1300, Tenure: 3 to 6 months)

Mahanagar Gas Ltd is in the business of City Gas Distribution (CGD), presently supplying Natural Gas in the city of Mumbai including its adjoining areas and the Raigad district, in the State of Maharashtra, India.

Fundamental Analysis:

Market Cap:  8,950 Cr. | Stock P/E: 13.39 | ROCE: 36.55 % | ROE: 29.66 % | Debt to equity: 0.02 | Interest Coverage: 118 | Free cash flow 5years:  1,746 Cr. | Promoter holding: 32.50 % | Pledged percentage: 0.00 % | Company has delivered good profit growth of 21.52% CAGR over last 5 years


5) Exide Industries Ltd (Current Price: 155 Rs, Target: 200, Tenure: 3 to 6 months)

Exide Industries is primarily engaged in the manufacturing of Storage Batteries and allied products in India. It is the largest manufacturer of automotive and industrial lead-acid batteries in India and fourth largest in the world.

Best part is it has a full fledged Insurance business (Exide Life) which market hasn't valued yet.

Fundamental Analysis:

Market Cap:  13,230 Cr. | Stock P/E: 21.41 | ROCE: 17.02 % | ROE: 12.52 % | Debt to equity: 0.03 | Interest Coverage: 8.03 | Free cash flow 5years:  3,790 Cr. | Promoter holding: 45.99 % | Pledged percentage: 0.00 % | Company has been maintaining a healthy dividend payout of 32.84%

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Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

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