Defence stocks HAL, Mazagon Dock among key picks of analysts in a falling market; PFC, REC BoB, HDFC Bank other top bets

Stocks to Buy: The benchmark Nifty 50 index and Sensex have remained volatile after correcting from record highs. The mid and smallcap stocks are also following the same course. The benchmark Nifty 50 after hitting all-time highs of 26,277.3 is now trading close to 25,000 levels. The Nifty Midcap 100 has corrected from highs of 60,925.95 levels and is now trading close to 59,400 levels. Analysts remain cautious with a view that largecaps will outperform in the near term. However, they believe certain mid and smallcaps with strong fundamentals also have the scope to deliver solid returns.

Cautious stance of experts

“What we’re experiencing presently in the stock market is a long overdue correction. And it is not unusual to even see 20% corrections within a large bull market" said Amar Ambani, Executive Director, Yes Securities. As per Ambani even after this deep correction, we still see a lot of midcaps and small caps devoid of any valuation comfort to invest in them. 

For the next few months, he expects to see downfalls in those stocks where valuations are 30-40x and promoter comfort is not high. Having said that, quality names with high business visibility and reasonable valuations will continue to deliver over the next one-two-year period, added Ambani.

Manish Chowdhury, Head of Research, StoxBox said that the recent correction in markets has removed froth from some mid and small companies which had run ahead of their fundamentals. Though the overall mid and smallcap space still looks expensive, our sense is that the recent correction provides selective opportunities.

Key picks of Experts

Largecaps may take preference for a few months, says Ambani. A gradual outperformance from the banking financial services and insurance (BFSI) space is expected, as per Ambani. He remains bullish on insurance stocks while Bank of Baroda and HDFC Bank remain his top picks from the banking space.

Manish Chowdhury, on the other hand, believes that select public sector undertakings (PUSs) in the defence and power sector which have robust earnings visibility and have sharply corrected on the valuation multiple side provide a favourable risk-reward from a medium to long-term perspective. He particularly likes Hindustan Aeronautics, Mazagon Dock Shipbuilders, Power Finance Corporation and REC from the midcap space and believes a decent move from the current levels cannot be ruled out. 

We would now closely track the upcoming earnings season for mid and smallcap companies to have a more constructive view on the overall space, said Chowdhury.

Nishant Srivastava, CEO, Torus Wealth said that while broader indices have shown resilience, mid and smallcap stocks offer unique investment opportunities. Their valuations, though volatile, can present attractive entry points for long-term investors. However, one should check fundamentals, sector trends, and broader market conditions before investing in mid and small-cap stocks.

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.