The Indian market has been witnessing bouts of the volatility, as caution prevails amid rising coronavirus cases and falling macroeconomic indicators.
Even though the market is substantially above its March lows, the sustainability of the rally is always under doubt.
Interventions by governments and central banks have prevented the situation from deteriorating significantly, it is unlikely that the recovery will be V-shaped and it may take some time for the global economy to recover to its pre-COVID levels, Angel Broking has sad.
"Therefore, while we remain positive on the markets from a longer-term perspective, we feel that investors should be judicious in their stock selection and should focus on companies with high-quality business franchises, which have strong revenue visibility going forward," the brokerage firm said.
Here are 10 largecap trading ideas for the long term:
Analyst: Vinod Nair, Head of Research, Geojit Financial Services
ICICI Bank | Buy | LTP: Rs 368.90 | Target price: Rs 420 (using SOTP methodology) | Upside: 14%
The bank has reported an advance growth of 10 percent year-on-year (YoY) backed by a domestic loan book, in challenging times.
Gross non-performing assets (NPA) improved by 40 bps to 5.53 percent for Q4FY20 on reclassification of a few loans.
Better portfolio mix with a high share of the mortgage in the retail book, which is close to 50 percent, and above 'A' rated corporate exposure is 90 percent, the best in the industry.
A well-structured balance sheet with capital adequacy at 16.1 percent with Tier-1 capital at 14.7 percent, which is well above the regulatory guideline of 10.5 percent.
"We believe macro uncertainty has already been factored as the valuation has corrected close to 55 percent from highs in the last six months. With further ease in lockdowns, we believe large banks with better liability franchise will gain," the analyst said.
Dr Reddy's Laboratories | Buy | LTP: Rs 3,885.85 | Target price: Rs 4,344 | Upside: 12%
Dr Reddy's expects to launch 25 products in the US market in FY21 and as of March 31, 2020, the company had 101 cumulative filings (99 ANDAs and 2 NDAs) pending for approval with the US Food and Drug Administration (FDA).
"Considering the strong pipeline and robust growth across segments during FY20 as well as smooth operations ahead, owing to VAI classification from the US FDA, we estimate revenue to grow at 7.5 percent FY20-22E CAGR. Therefore, we raised our target price to Rs 4,344 based on 23 times FY22E adjusted EPS and upgrade the rating to 'buy' on the stock," said the analyst.
Colgate-Palmolive (India) | Buy | LTP: Rs 1,391 | Target price: Rs 1,718 | Upside: 24%
Colgate-Palmolive (India) manufactures consumer products in oral and body care areas. The company is the leader in the Indian oral care segment, with a market share of about 50 percent.
Being a defensive sector stock, the company has a limited downside during a slowdown due to its essentiality.
Colgate has a stable business with a long term growth rate of 11 percent CAGR and a free cash flow of Rs 850 crore as of FY19.
"With no leverage and an adequate cash balance of Rs 456 crore as on FY19, we recommend 'buy' rating with a target price of Rs 1,718 based on 42 times FY22E adjusted EPS," the analyst said.
HDFC | Buy | LTP: 1,884.60 | Target price: Rs 2,166 | Upside: 15%
HDFC provides housing finance to individuals and corporates in India. Its AUM grew by 2.3 percent QoQ and by 12 percent YoY in Q4FY20.
Individual loans grew at 18 percent CAGR and consolidated PAT at 21 percent CAGR over the last five years.
The Net interest margin (NIM) improved from 3.3 percent to 3.4 percent over the last quarter and PAT grew by 3.5 percent in Q4FY20 from Q3FY20.
The mortgage market in India is still at its infant stage with a penetration of 10 percent in nominal GDP, implying huge growth over the long term, aided by fiscal incentives and interest subvention scheme.
"We have a 'buy' rating on the stock with a target price of Rs 2,166, based on 3.8 times FY22E BVPS," the analyst said.
Brokerage: Angel Broking
Bharti Airtel | Buy | LTP: Rs 561.25 | Target price: Rs 672 | Upside: 20%
The brokerage expects a limited impact of lockdown on Bharti. There will be some impact on subscribers from the low-income group, especially daily wage earners due to the lockdown.
However, a sharp increase in data consumption should make up for a significant portion of the loss.
Bharti has raised $2 billion from a QIP at Rs 445 per share along with FCCB issues of $1 billion in January 2020. Therefore, Bharti is much better placed as compared to Vodafone Idea in terms of liquidity, the brokerage said.
"Telecom operators have increased tariffs by nearly 35 percent in November 2019. There is a possibility of another round of tariff hikes in FY21, given that the tariffs are still very low. If this were to happen, then it would lead to further upsides to our estimates for FY21 and FY22," the brokerage said.
"Even if there is no major tariff hike in FY21 and Vodafone Idea goes out of business, Bharti would benefit significantly from the addition of subscribers," the brokerage added.
Larsen & Toubro (L&T) | Buy | LTP: Rs 941.05 | Target price: Rs 1,093 | Upside: 16%
L&T is India’s largest EPC company with a strong presence across various verticals including infra, hydrocarbon and services.
It also has a strong presence in IT services and NBFC space through its various subsidiary companies, which are also growth drivers for the company.
L&T has a strong order backlog of nearly Rs 3 lakh crore. The majority of the order book is from the Centre, state government and PSUs, where the risk of cancellation is low.
"On the macro front, it seems that the COVID-19 situation is well under control in Europe, while the worst of the outbreak seems to be behind for the US, which is leading to a risk-on rally globally. We, therefore, feel that while there will be near-term challenges for the company in terms of order flow and execution, the stock is trading at a significant discount to historical average valuations and offers favorable risk-reward from current levels given global tailwinds," said the brokerage.
Britannia Industries | Buy | LTP: Rs 3,676.35 | Target price: Rs 3,920 | Upside: 7%
Britannia has brands like Tiger, Good-Day, and 50:50 in its fold with an estimated market share of 33 percent in the Indian biscuits industry. Biscuits contribute more than 80 percent to the turnover.
It has an overall distribution reach of 5.5 million outlets. With a consistent focus on distribution expansion, Britannia has narrowed the gap with the number 1 player. The gap with the largest distributed brand is just 0.8 million outlets.
In Q4FY20, the company outperformed others in the FMCG space, with a YoY growth of 2.5 percent/20bps/27 percent in revenue/EBITDA/PAT, respectively.
The food industry is witnessing a shift from dining out/street food to home consumption. Britannia is a low-price product with trusted brands and is well-positioned to cater to the shift, said the brokerage.
Reliance Industries (RIL) | Buy | LTP: Rs 1797.35 | Target price: Rs 1,937 | Upside: 8%
RIL has built up a dominant telecom business and has already attained market leader status with 38.3 crore subscribers at the end of Q4FY20.
Telecom business will witness robust growth over the next few years due to tariff hikes and the shift of subscribers from Vodafone Idea to other players.
RIL has also built a very strong retail business, which is the largest organised retailing company in India.
The brokerage expects the retail business to be a key value-driver for Reliance in the long run, though there will be some impact on business in FY21 due to the COVID-19 outbreak.
"The company has raised Rs 1.17 lakh crore from marquee investors like Facebook, General Atlantic, KKR, Intel, etc, which reaffirms our conviction in the company’s potential transformation to a digital play from a pure brick and mortar company," the brokerage said.
Axis Bank | Buy | LTP: Rs 444.15 | Target price: Rs 500 | Upside: 13%
The ability to raise sufficient liquidity at low cost would be the key criteria for banks to navigate the current situation, as asset side inflow would be limited.
The brokerage said Axis Bank has been witnessing higher deposit growth in the last two quarters, which shows increasing deposit polarisation.
"Axis Bank has a healthy asset mix, superior customer profile, liability strength and capital comfort that is well-suited to ride this challenging period. The stock is trading at a significant discount to historical average valuations and offers favorable risk-reward from the current levels given global tailwinds," said the brokerage.
Hindustan Unilever (HUL) | Buy | LTP: Rs 2,185.30 | Target price: Rs 2,404 | Upside: 10%
HUL manufactures branded and packaged FMCG products, including soap, detergent, personal care products and processed food.
The company also produces ice creams, cooking oils, fertilisers and hybrid seed. HUL has a strong brand recall and has an extensive distribution reach of over 7 million outlets and direct distribution of over 3.5 million retail outlets.
It also has a strong balance sheet along with free cash flow and higher profitability.
"Going forward, we expect HUL to report healthy bottom-line growth due to healthy volume growth on the back of strong brand, wide distribution network," said the brokerage.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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