Though we are not ruling out further consolidation/ correction in Indian equities driven by weaker liquidity, news flow w.r.t. interest rate/inflation scenarios, and profit booking ahead of LTCG imposition, there are few stocks which investors can keep in investment radar given their disproportionate correction in recent times and fundamentals that are unfazed by the current developments.
A confluence of domestic and international developments triggered Indian equity market correction with the 50-share Nifty declining 7 percent from recent all-time highs.
While a not so investor friendly budget, and imposition of LTCG (long term capital gains) tax was a disappointment, a sharp surge in US 10-year yields post a good set of non-farm payrolls proved to be a dampener for global equity markets. At the time of writing this report the S&P 500, DAX and Nikkei were down 8 percent, 6 percent and 10 percent, respectively, from their recent highs.
While global earnings and macro scenario have improved, S&P 500 has scaled up nearly 25 percent from the lows in November 2016.
While Indian small cap and mid cap equity indices are down 12-15 percent from recent highs in the recent round of correction, they are still up by close to 48 percent and 39 percent, respectively, from their demonetisation lows.
Though we are not ruling out further consolidation/ correction in Indian equities driven by weaker liquidity, news flow with respect to interest rate/inflation scenarios, and profit booking ahead of LTCG imposition, there are few stocks which investors can keep on radar given their disproportionate correction in recent times and fundamentals that are unfazed by the current developments.
Chart: Nifty vs BSE small cap/mid cap vs S&P 500
Source: Thomson reuters
Bharat Electronics: Over past one month Bharat Electronics has corrected close to 22 percent, currently trading 16 times it FY19 estimated earnings, which is quite attractive given the zero debt in the books, high RoE and huge order book of about Rs 43,000 crore in a growing defence market.
Cochin Shipyard: It has a limited balance sheet and management risk with huge cash in the books, could be a good stock to track in the current market. Moreover, earnings growth trajectory remains strong with good order book and planned capex.
Coromandel International: With growing share of the non-subsidy business, margin expansion in the fertilizer segment, growth in crop protection business, expected growth in the horticulture output, reduced exports along with positive budgetary allocation for the sector and pan India roll out of the DBT subsidy scheme (Direct Benefit Transfer), we expect a healthy topline growth in the coming quarters.
Emami: Emami’s stock price has corrected by 18 percent since the Q3FY18 result. While the result was below expectations, management’s commentary on rural recovery (~50 percent of sales from rural areas) is encouraging. While the company’s focus on new product launches and step up in advertising spending underlines management’s confidence, expected stabilization in Kesh king portfolio is the key factor to watch for.
Himadri Specialty Chemicals: We are encouraged by Himdari’s Q3FY18 sales result (+42 percent YoY) which is mainly backed by better realizations (carbon black and Coal Tar Pitch) leading to 84 percent YoY gain in EBITDA/ton. While improving end market demand is backed by capacity expansion plans (60kT for Carbon black), company’s foray into value added product (advance carbon material for lithium ion battery) with 20kT capacity is a key earnings trigger.
Note: Rain industries CY numbers
Source: Thomson reuters
NBCC: Company is into the construction of government projects and has a strong return ratios and sitting on cash with huge order book of close to Rs 75,000 crore or 12 times its trailing revenue. Moreover valuations too are attractive after recent correction.
Rain industries: Key product segments of the company, CPC (Calcined petroleum coke) and CTP (Coal Tar Pitch), continue to witness improved pricing due to structural changes in supply and improving demand scenario for the end market (Aluminum and Graphite).
Titan: Going forward, studded and high-value diamond jewellery sales, asset-light store additions, and GST transition (from unorganized players to branded organized ones) are likely to drive Titan’s earnings visibility.
UPL: Post the decent performance in Q3 FY18 on the back of a volume uptick, the company plans to expand in manufacturing which currently seems to be a strong market owing to closure of Chinese factories. The good performance of the herbicide portfolio, a decent Rabi expectation and strong response to the new product launches along with a decent order book make it an ideal long term play.
V-Mart: V-Mart’s strategy entails cluster-based store expansion in tier 3/4 cities, a higher share of private label brands to the overall revenue, and volume-driven apparel growth. Robust fundamentals and a steep price correction in recent times make this stock worthy of consideration.
(Written by Anubhav Sahu, Jitendra Gupta, Ruchi Agrawal. Krishna Karwa)For more research articles, visit our Moneycontrol Research Page