2 Smallcap Stocks to Watch Post Restrictions Lifting

  • Stock Market Analysis

Looking at the indices, it appears that the euphoria in the Indian stock market keeps on growing only. Nifty settled at 16,258.80 today, almost near to its lifetime high. The macroeconomic numbers released by the Government made sure that the 'going high' party continues. GST collection was Rs 1.16 lakh crore in July 2021, above the Rs 1 lakh crore mark considered normal. This visible rise in GST may indicate recovery and resumption in economic activity. Monsoon has remained a perfect normal in India in 2021 so far. All these signs point out better days for markets ahead. Many shares have rallied in anticipation of unrestricted economic activities in the future. However, some stocks are likely to move further northwards in a couple of weeks. We have shortlisted two stocks that hold promise in the short to medium term.

1. Trident Ltd (NS: TRIE )

Trident is engaged in the production and sale of paper, textiles, yarn, and chemicals. The company manufactures paper from wheat straw, weaving and hosiery yarns, towels, and sulphuric acid. Trident's paper segment, which accounts for more than 20% of FY2021 revenue and ~ 50% of operating profit, is expected to do better in the coming quarters. Improving demand, optimism surrounding the opening up of educational institutes and industry supports the expectations.  Although Trident is yet to return to pre-pandemic levels in terms of margins, the top-line growth should subsidize the negation.  The company is the world's largest manufacturer of wheat straw-based paper with a yearly capacity of 175,000 MT. It has a 12% market share in India in the copier segment. In NCR and the North region, it has slightly more than 30% market share. The consumption of packaging boards has also increased, riding on higher e-commerce sales and consumption of packaged foods.

Trident's textiles vertical has shown strong resilience supported by the demand revival in the home textiles products. Covid appropriate behavior along with work-from-home trend is expected to keep the demand growth in the future. The company is also diversifying in the detergent market by starting commercial production of its 'Tri-Safe' washing powder. Easing restrictions and going back to normalcy is expected to drive the stock further higher. In Q4FY2021, its revenue jumped 35.7%, and net profit skyrocketed 95.4% year on year.  At present, the stock is trading at its all-time high. The period returns are; 390% in five years, 224% in a year, 57.4% in six months, 29% in a month, 13% in the last five days, and 5% today to close at Rs 22.2.

2. Delta Corp Ltd (NS: DELT )

Delta Corp is a diversified business group. The company has interests in gaming and entertainment, real estate in India and Kenya. Its business portfolio consists of offshore casinos, and real estate consulting, and real estate development. In India, the company operates casinos in Goa and Sikkim. The latter is the only Indian state apart from Goa to legalize casinos. The Government of Goa put curbs on economic activities, including casino gaming, from May 3, 2021, and renewed it week by week. It has now further extended the restrictions until August 2, 2021. Despite the unfavorable impact on Delta's casinos in Goa, the company's casing gaming operations restarted from July 6 in Sikkim. As the covid-19 cases show a continued downtrend in Goa, the casinos will be re-opened once allowed by the Government there. Note that promoters' holding in Delta has increased marginally over the last four quarters ended June 2021. The stock was up 49% in the previous five years, 85.4% in a year, 18.4% over the previous six months. However, on a 30-day basis, it has declined 9.5% and remained in the red zone on a five-day and one-day basis. We believe that the Goa casinos re-opening scenario is not completely priced in this script. It is likely to move northwards on any positive news from the Government front. The scrip is currently trading at a 12.5% discount to its 52-week high.

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