Investors should use dips to buy into quality stocks, especially low PE stocks which could act as a shield against market volatility.
The S&P BSE Sensex lost more than 1,000 points in trade on Tuesday weighed by a global sell-off in equities. The Sensex has officially wiped out gains made so far in the year 2018.
The S&P BSE Sensex closed at 33,812 on January 1 and the intraday drop on Tuesday was 33,483 which officially signals a negative return so far in the year compared to 28 percent rally seen in the year 2017.
The Nifty50 slipped below its crucial 100-DEMA placed near 10,400 levels. But, this is something which was long overdue, argue experts. The valuations were stretched not just at the index level but in individual stocks as well.
Investors should use these dips to buy into quality stocks and especially low PE stocks which could act as a shield against market volatility. Considering the fact that the fall is driven by global factors, investors should stay long in Indian markets.
Spike in interest rates in US and inflation concerns led to an initial sell-off, which got accentuated by over-bought positions, say experts.
“The contagion has spread to other asset classes (bitcoins, base metals, crude etc.) and most emerging markets which is usually the case. The fact is that markets were not prepared for a large sell-off and there was a bit of complacency & exuberance across equity markets which were reflected in the low IVs (Implied volatility, which has reversed in past couple of days),” Hemang Jani, Head - Advisory, Sharekhan told Moneycontrol.
“If an investor has surplus funds and has a time frame of more than 12-24 months, this is the time to increase the allocation to equities, as there is a meaningful correction in the market after a long time,” he said.
Jani further added we see this as an opportunity for retail investors, as this is happening at a time when earnings growth revival is seen across companies after a gap of almost 3 years.
Some of the companies like Maruti, Escorts, HDFC, HDFC Bank, L&T, JSW Steel that has reported good numbers this quarter and has upside potential of over 15 percent can be looked at in the positive light, he said.
We have collated a list of ten stocks recommended by global brokerages last month which can give up to 40% return in the next 12 months:
Future Consumer: BUY| Target Rs85| Return 42%
UBS initiates a buy on Future Consumer with a target price of Rs85. The Future Consumer (FCL) is at an inflection point in terms of revenue growth. The company is a key beneficiary of growth spillover into private brands.
FCL continues to grow aggressively and at the same time, it is improving on the margins. Improving product mix is helping to increase gross margin and profitability, said the UBS report.
The global investment bank further added that investors do not fully appreciate its ability to turn profitable in the medium term. However, Future Consumer is likely to turn profitable in FY19. The company could well report a Net profit of Rs 56.5 crore in FY19.
The company has the strongest growth and UBS expect revenue CAGR of 49% over FY17-22. It also expects EBITDA margin to expand by 550 bps over FY17-22.
HDFC Ltd: BUY| Target Rs2000| Return 13%
Nomura maintains a buy call on HDFC with a target of Rs2000 post Q3 results. The Core net interest income (NII) performance supported by stable spreads.
The core mortgage profit were supported by improving growth trends and stable spreads. It looks like the mortgage growth has bottomed out, but the asset quality remains stable. The recent re-rating limits near-term upside said the note.
Emami: Outperform| Target Rs1314| Return 20%
Macquarie maintains an outperform rating on Emami post Q3 results with a target price of Rs1314 even though the 3FY18 EBITDA was below estimates led by the very weak performance of Kesh King.
Kesh King declined on account of challenges in wholesale and rural markets. The pressure form Kesh Kanti (Patanjali) also leading to weakness. EBITDA margin lower than expected on higher A&P spend. The global investment bank further added that EBITDA growth trajectory needs to pick-up significantly for re-rating.
Tech Mahindra Ltd: Outperform| Target Rs720| Return 14%
Credit Suisse maintains an outperform rating on Tech Mahindra post Q3 results and raised its target price to Rs720 from Rs700 earlier.
Tech Mahindra reported another solid quarter demonstrating turnaround which is well on track. The margin expansion is a key positive surprise in Q3FY18. The enterprise business is solidly poised and should benefit cyclical tailwind as well.
Credit Suisse is of the view that there is more steam left in the stock as it expects EBIT CAGR of 16 percent over FY18-20.
Maruti Suzuki India Ltd: BUY| Target Rs10,720| Return 21%
Jefferies maintains a buy rating on Maruti Suzuki post Q3 results but raised its target price to Rs10,720 from Rs9245 earlier. Positive surprise on the margin drives EBITDA beat said the report. Lower royalty on new models is likely to help growth in margins.
The global investment bank revised near- and long-term margin estimates upwards. It revised to factor in marginally higher revenue, better margins and lower other income. Maruti remains the best way to play large long-term PV opportunity in India.
Avenue Supermarts: BUY| Target Rs1600| Return 43%
HSBC upgraded Avenue Supermarts to buy from hold earlier and has also raised its target price to Rs1600 from Rs900 earlier post Q3 results. Avenue Q3 profits were significantly ahead of expectations, said the HSBC note.
The revenue growth momentum and margin expansion led the beat. D-Mart business model is formidable, scalable and a winning proposition.
Avenue will be able to capture value from structural growth ahead of the competition. The valuations are not ahead of long term fundamentals, it said.
LIC Housing Finance: BUY| Target Rs720| Return 40%
Nomura maintains a buy rating on LIC Housing Finance post Q3 results and raised its target price to Rs720 from Rs660 earlier.
The Q3FY18 results were operationally in-line with expectations. The near-term PPOP growth likely to remain weak. The brokerage firm said it remains cautious on incremental mortgage spreads.
A large part of the de-rating is done and valuations have bottomed out. It still maintains a buy call on reasonable valuations.
Phoenix Mills Ltd: BUY| Target 720| Return 19%
HSBC maintains a buy rating on Phoenix Mills but raised its 12-month target price to Rs720 from Rs580 earlier. FY19 is likely to be the year of strong cash flow generation for the company, said the report.
It expects strong cash flows as stake purchases completed and under construction properties are ready. The current holding structures to open-up value unlocking and monetisation options.
The lower cost of capital means falling debt cost. It also expects weak residential sales momentum.
Mahindra Finance: BUY| Target Rs550| Return 26%
Deutsche Bank maintains a buy rating on Mahindra Finance with a target of Rs550 post Q3 results. The company reported strong earnings for the quarter ended December.
The Net interest margins expansion and AuM growth drive strong quarter. The AuM growth to stay strong, and the asset quality matrices is likely to improve, said the report.
Petronet LNG Ltd: BUY| Target Rs290| Return 17%
Jefferies upgraded Petronet LNG to buy from hold earlier with a target price of Rs290. The near-term view of the stock looks firm while the view for the long term remains solid as valuation are less stretched.
Jefferies expects Dahej to operate near capacity with imports likely to rise at Kochi. The near-term macro is resilient too. The domestic gas output fell while LNG imports rose in Q3.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.