The 30-share BSE benchmark gained another 463 points this week on top of a 1035 points rally in previous week, supported largely by inflow of foreign money. That pushed the rupee 180 paise up this week as against 46 paise last week. The rally was largely led by Rajan effect, easing of tensions in Syria and strong Chinese economic data. After 1500 points rally in last two weeks, the market is looking for more triggers globally and locally to get direction on either side. There are two events lined up next week- FOMC on September 17-18, which is the major event as far as the globe is concerned. Any news on Fed tapering from Ben Bernanke will be closely watched because experts feel the Fed may reduce USD 85 billion monthly bond buying purchases by USD 5-15 billion. The second event is the RBI policy scheduled on September 20. It will be the first policy from new RBI governor Raghuram Rajan. Experts feel the market is likely to remain rangebound and cautious next week. So, here are 11 stocks recommended by Sharekhan that you can buy in this uncertain market. The firm believes that the current shopping list with these stocks’ composition is well structured to perform during corrections as well as bounce-backs.
Reliance Industries Target price: Rs 1,010 Rationale: In case of the upstream exploration business, RIL has got the nod for further investments in exploration at the Krishna-Godavari basin, which augurs well for the company and could address the issue of falling gas output. Further, the CCEA has approved a new gas pricing formula, which increases the price of gas to $8.4/mmbtu from $4.2/mmbtu and augurs well for the company. This could provide further upside to the company’s earnings.
TCS Rationale: The consistency and predictability of the earnings performance has put the company in the top of its league. Moreover, the quality of its performance has also been quite impressive, ie it has been able to report a broad-based growth in all its service lines, geographies and verticals consistently over the past two years, thereby justifying its position as a full service player in the IT industry.
HDFC Bank Target price: Rs 712 Rationale: It is expected to continue its strong growth in advances due to a strong presence in the retail segment. While the credit demand has moderated in the corporate segment, it has a strong presence in the retail segment which will benefit the bank. The bank has the highest current and savings account (CASA) ratio in the sector with a stable net interest margin (NIM; at 4.6% levels). Given the higher proportion of CASA and retail deposits, it will be least affected by the Reserve Bank of India’s liquidity tightening measures.
ICICI Bank Target price: Rs 1,195 Rationale: It continues to report a strong growth in earnings led by a growth in advances and expansion in margins (2.9% in FY2013). Its advances are likely to grow at 17.6% CAGR over FY2013-15. This should lead to a 17.1% CAGR growth in the net interest income (NII) in the same period. ICICI Bank's asset quality remains stable as its non-performing assets (NPAs) have declined in the past several quarters led by a contraction in slippages. This has led to a sharp reduction in the provisions and an increase in the profitability. Going forward, the asset quality pressures are likely to be within the manageable limits leading to a healthy the profit growth.
Larsen & Toubro Target price: Rs 1,075 Rationale: Despite challenges like deferral of award decisions and stiff competition, the company has given a robust guidance of around 15% growth in the future. A sound execution track record, a healthy order book and a strong performance of its subsidiaries reinforce our faith in L&T.
Bharti Airtel Target price: Rs 395 Rationale: The Q1FY2014 results of the Indian business of Bharti Airtel exhibited a strong pricing power (+4% QoQ), with a robust data revenue growth, aided by a 190-basis-point sequential margin expansion in the India mobile business. The strong performance indicators along with a positive management commentary on maintaining pricing discipline and headroom ahead for price increases make us upgrade our India mobile revenue and margin expectations.
HCL Technologies Target price: Rs 1,187 Rationale: Through the Axon PLC acquisition, the company has gained a strong SAP consulting footing. The management continues to see EBIT margin corridor of 19-20% for the coming quarter. However, the margin could improve further if the rupee continues to stay weak against the dollar over the coming quarters. Among the top 4 IT companies, HCL Tech has shown the highest sensitivity to the rupee’s depreciation in terms of margin improvement in the last seven quarters.
Bajaj Corp Target price: Rs 303 Rationale: The company’s thrust on enhancing the distribution reach in rural India and improving the market share every year has helped it clock a good sales volume growth in the past few quarters. Any initiative to expand its limited product portfolio or strengthen its core business would be a key upside trigger for the stock.
Divis Labs Target price: Rs 1,231 Rationale: Despite a weaker performance in Q4FY2013, we are confident of Divis Laboratories’ growth potential. Its recent performance was affected by the expansion process and the switching of production to new facilities which partly disrupted supplies. The growth will bounce back on normalisation of supplies by the end of Q1FY2014. It will benefit from the rupee’s depreciation against major other currencies, thanks to its debt-free balance sheet and the fact that nearly 90% of its revenues come from the export market (mainly the USA and Europe).
Sun Pharma Target price: Rs 595 Rationale: The combination of Sun Pharma, Taro Pharma, Dusa Pharma and the generic business of URL Pharma offers an excellent business model for Sun Pharma, as has been reflected in the 40% Y-o-Y revenue growth and 39% Y-o-Y profit growth in FY2013. Though a $550-million provision related to Protonix case would erode the cash balance by 55% in FY2014, but we believe Sun Pharma is in a comfortable cash position. The rupee’s depreciation against the dollar is set to positively affect Sun Pharma.
Zee Entertainment Enterprises Target price: Rs 300 Rationale: On completion of 20 years of operations, ZEEL has issued redeemable preference shares (RPS) aggregating Rs2,000 crore (6% preference dividend) for eight years. The RPS will be issued at a ratio of 21 RPSs for every equity share. The RPS will be redeemable from the fourth year till the eighth year. ZEEL will be the major beneficiary of the digitisation process in the years to come which coupled with a strong balance sheet and high return ratios makes it a compelling long-term growth story.