Ashok Leyland, Lupin, Federal Bank among top 4 midcap picks of Axis Securities with up to 21% upside potential

Bears were in full control in Wednesday's trading session as Sensex crashed over 1000 points to hit an intraday low of 65,431.68. Indian market plunged after the rating agency Fitch downgraded the US government's top credit rating. Fitch's latest move led to havoc as bears dragged the indices lower.

However, Axis Securities believes that the current setup is a ‘Buy on Dips’ market. "We recommend investors maintain good liquidity (10 per cent) to use any dips in a phased manner and build a position in high quality companies (where the earnings visibility is quite high) with an investment horizon of 12-18 months," it said.

It continues to believe in the long-term growth story of the Indian equity market, supported by the emerging favourable structure as increasing Capex enables banks to improve credit growth. "Strong earnings trajectory continues in the NIFTY 50 universe. We foresee NIFTY EPS to post growth of 16%/13% in FY24/25. After Q4FY23, we have seen a marginal drop of 1 per cent in our Dec’25 Nifty EPS expectations," the brokerage firm added.

Axis Securities has come up with 4 mid-cap stock ideas with up to 21 per cent upside potential. Do you own any?

1) Lupin | Buy | Target Price: Rs 1,082 | Current Price: Rs 993.9 | Upside: 9%

Axis Securities is positive on Lupin due to the launch of gSpiriva and gDarunavir products. It believes both these products would increase the company’s gross margins by 100bps in the next two years.

"We foresee a significant scope for margin improvement in the upcoming quarters. We expect the macro environment to be in favour of the industry, led by a fall in raw material prices along with low logistics and fuel costs," it said.

2) Federal Bank | Buy | Target Price: Rs 160 | Current Price: Rs 132.6 | Upside: 21%

The brokerage firm believes that the bank's key strengths continue to be sustained credit growth, strong liability franchise, improving fee income with the bank looking to deepen the relationship with corporates to improve client wallet share, improving cost ratios, and benign credit costs backed by robust asset quality metrics.

"Federal Bank is cautiously building a loan mix toward high-rated corporate and retail loans. The management believes that margins have bottomed out with the impact of deposit repricing already reflected in the CoF. Faster yield expansion supported by a favourable loan mix and robust business growth should drive spread/margin expansion in the second quarter and onwards," it added.

3) Ashok Leyland | Buy | Target Price: Rs 210 | Current Price: Rs 180 | Upside: 17%

According to Axis Securities, Ashok Leyland remains well-positioned to benefit from a longish CV upcycle. "We remain positive on the long-term growth trajectory of the company with better margins led by operational efficiencies, material cost reduction program, softening of commodity costs, and pricing discipline, and expect 8 per cent CAGR volume growth over FY23-26E," it said.

4) Relaxo Footwears | Buy | Target Price: Rs 1,050 | Current Price: Rs 925 | Upside: 13.5%

The brokerage firm said that the first quarter result was strong and the management’s FY24 outlook gives confidence that the worst is behind the company. Demand environment is likely to recover in FY24, especially in rural India and raw material prices are now stable, which will aid in gross margins expansion.

It noted that the company is regaining its lost market share from unorganised players and it is focusing on premiumisation by increasing the share of a fast-growing sports and athleisure category. It is also doubling its capacity of Sparx from the current 50,000 pairs/day to 100,000 pairs/day at Bhiwadi (Rajasthan), which is a step in the right direction from the long-term perspective.

Disclaimer: The stocks mentioned in the story are for information purposes only. Investors or market participants should consult their financial advisors before taking any position

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