that nothing is more difficult than
searching for value in an upwardly trending market as most stocks,
irrespective of their fundamental merit, tend to earn returns.
such a scenario, companies that enjoy a higher market capitalization
appear to be more attractive, considering their better corporate
governance, higher business potential due to leadership position in
respective sectors and wider coverage by independent analysts.
Ironically, the same factors tend to inflate valuations of large-cap stocks, thereby making them less attractive as markets
scale new heights. In addition, the growth potential of large caps may
be restricted due to their size. Mid-cap companies score on this front
as they exhibit a higher growth potential. Well-managed midcaps of today
with clear goals are the likely large caps of tomorrow.
this thought that prompted us to identify the high-potential large caps
of the future in this year’s ET500. This comes as part of our endeavour
to predict winners, or multi-baggers as some prefer to call them, for
our annual listing, which ranks India’s 500 biggest publicly-listed
We have handpicked 10 mid-sized companies across
sectors that we believe have what it takes to make it big in the coming
years. These include Allcargo Logistics, which provides freight-forwarding and container freight station services, tyre maker Ceat, Carborundum
Universal, engaged in the production of raw materials for diverse
sectors, aerospace parts supplier Dynamatic Technologies, plastic pipe
maker Finolex Industries, dairy company Hatsun Agro Product, L&T Finance, software exporter Persistent Systems, auto ancillary maker Rane Holdings, and VA Tech Wabag, which provides water-treatment solutions.
Most of these companies cater to the domestic market and, therefore,
could well participate in the recovery of the economy. Some are
export-driven and will benefit from reviving global demand. One factor
that makes these companies nimble is their ability to grow inorganically
through acquisitions. Allcargo, for instance, has taken over 10
companies in India and overseas in the past eight years. Though these
were funded partly through borrowed money, inherent synergies and the
smooth integration of acquired businesses helped Allcargo keep overall
debt levels relatively low. The company aims to become debt-free in
another three years.
Carborundum Universal has cautiously treaded
the inorganic route with four acquisitions in 15 years. It expects its
purchases to generate two-thirds of long-term business growth. A higher
level of corporate governance is a hallmark of these companies.
Persistent Systems, for example, is in the habit of winning recognition
for reporting, compliance and governance.
A few words of caution. Some of these stocks have gained sharply over the past few months. Dynamatic Technologies and Rane Holdings have risen more than three times in the past six months. The returns from VA Tech Wabag and Balkrishna Industries have almost doubled during the period.
While we believe each of the 10 companies hold potential in the long
term, it is hard to predict how their stocks will behave in the near
term. Nevertheless, they all seem to be ready for the long haul.