Market participants with a bullish outlook are also being reminded that the mid-cap segment has witnessed a sharp correction over the past 18 months and that such corrections occur periodically. The commentary notes that investors with high exposure to mid-cap stocks should be prepared for such phases and avoid panic during market declines.
It states that the base-case expectation is for markets to trade with a bullish bias in the near term. However, it adds that the current environment calls for a selective investment approach rather than broad-based buying on the assumption that a market recovery will lift all stocks.
According to ET, this approach is particularly relevant in the mid- and small-cap segments, where stock performance can vary significantly. It suggests focusing on businesses whose demand is less dependent on broader market conditions or the economic cycle.
The commentary further states that companies with relatively resilient demand may be better positioned during periods of uncertainty, as their operations are less affected by fluctuations in economic activity or market sentiment.
Based on this view, ET identifies five companies that it believes fit these criteria and says they are more suited to investors with an investment horizon of at least two years rather than short-term investors.
Sectors and segment
According to the ET report, three of the five identified companies operate in the healthcare sector, one is in home finance and another is in the building materials segment. The report states that these businesses are driven by demand that is relatively less dependent on market sentiment or economic cycles.
The report notes that some of these companies, particularly those in the diagnostics segment, continue to trade at valuations that are not considered inexpensive, although their share prices have corrected from the elevated levels seen during the Covid-19 period. It adds that the focus is on the long-term value generated by their underlying businesses rather than on near-term valuation discounts.
According to the report, investors should consider metrics such as return on capital employed (RoCE), debt levels and dividend payment history, as these factors can provide insights into a company’s profitability, capital efficiency, financial strength and management’s ability to navigate business cycles.
The report explains that RoCE is a measure of profitability and capital efficiency, adding that while a higher ratio is generally considered favourable, consistency in RoCE over time is also an important indicator of a company’s ability to generate profits from the capital employed.
For identifying the five mid- and small-cap stocks, ET says it applied multiple financial filters. These included a minimum return on equity (RoE) of 15 per cent, a net profit margin of at least 10 per cent, a review of dividend payment history and an assessment of promoter shareholding trends. The report notes that a significant reduction in promoter stake could be viewed as a potential red flag.
The report further states that all five companies have an average Stock Report Plus score of at least 7 and cautions that even fundamentally strong stocks may underperform during periods of broader market weakness. The list is based on the Stock Report Plus report dated July 11, 2026, according to ET.
Stocks to pick
- Company – Thyrocare Technologies | Recommendation – Strong Buy | Upside Potential – 26 per cent
- Company – Can Fin Homes | Recommendation – Buy | Upside Potential – 26 per cent
- Company – Dr. Lal PathLabs | Recommendation – Buy | Upside Potential – 22 per cent
- Company – Narayana Hrudayalaya | Recommendation – Buy | Upside Potential – 20 per cent
- Company – Stylam Industries | Recommendation – Buy | Upside Potential – 15 per cent
(Disclaimer: The above article is meant for informational purposes only and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
