Moneycontrol
Last Updated : Oct 11, 2018 11:29 AM IST | Source: Moneycontrol.com

After deep cuts seen on Dalal Street, you can buy these 12 value picks for double-digit returns

Use the dips in the market to accumulate or buy into quality stocks.

Kshitij Anand @kshanand
July 6, 2009 | 870 points | The Sensex tumbled 6.98 percent intraday or 954 points as the government did not introduce any reform when it presented the Union Budget. The index, however, recovered later to close 870 points lower, or 5.8 percent to 14,043.4.
July 6, 2009 | 870 points | The Sensex tumbled 6.98 percent intraday or 954 points as the government did not introduce any reform when it presented the Union Budget. The index, however, recovered later to close 870 points lower, or 5.8 percent to 14,043.4.
 
 
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Weak global cues led to a 1000-point cut in the S&P BSE Sensex in opening trade on Thursday which pushed the index below its crucial psychological support at 34,000.

In fact, the last three months have been volatile for Indian markets. After hitting a peak in August 2018, benchmark indices have declined by over 10 percent since then.

Analysts have attributed the sudden fall in markets largely to depreciation in Rupee and the rise in the oil prices, which have an impact on the growth-inflation mix.

Apart from that, looming fears of a trade war and the strong dollar which could push global asset managers to take money out of riskier assets and put in treasure is also keeping sentiment subdued.

Although it is difficult to predict the bottom of the market, analysts feel that the recovery is on its way. String commentary from IMF released earlier this  week adds to the positive sentiment. Investors are advised to stay with value picks.

“Positive macro environment leads us to believe that equity markets are not heading towards a major crash. However, we believe that we are in midst of a correction which is a part of equities as markets tend to overshoot or undershoot fundamentals,” Karvy Stock Broking said in a report.

“While it is hazardous to predict where the equity markets would bottom, we can say that market could decline by another 5 percent or so. Post that, the markets could potentially stabilize and rally, we expect that Sensex will end calendar year 2018 at 37,500 and end calendar year 2019 at 45,000,” it said.

After a blockbuster performance seen last year, the current scenario is completely opposite to the situation last year. Strong macros and weak micros (corporate earnings) is turning into a scenario of weakening macro variables and stronger micros.

But, volatility is something which traders can use to their advantage. Use the dips in the market to accumulate or buy into quality stocks.

Also check out: 10 biggest single day crashes in Sensex's history

“The scenario has completely changed as to what we saw last year. The transition along with global uncertainties is resulting in a readjustment in debt and equity markets. Accordingly, equity investors also need to tweak their portfolios,” said a Sharekhan report.

“Finally, markets do test conviction. That’s the reason why many tend to book permanent loss in a temporary correction while others use the temporary correction for permanent wealth creation.

The choice is entirely in your hands,” it said.

Here is a list of top 10 stocks which could offer 20-100% return in the next 12 months:

Adani Ports: Buy| LTP: 318| Target: Rs 458| Return 44%

Karvy Stock Broking maintained its buy rating on Adani Ports (APSEZ) which is also India’s largest Commercial ports operator. APSEZ is consistently delivering growth with gaining market share (14.8% to 15.2% as on FY18).

Total cargo volumes grew by 7 percent for FY18 to 180 MMT while all India cargo grew by 4 percent. The container volume has also grown across all ports. Going forward, a healthy growth of container and cargo volumes coming in from the expansion plans are the key positives.

The stock is currently trading at 14.3x, and the consensus values the company at 19.9x for a target price of Rs. 458.

Hero MotoCorp: Buy| LTP: Rs 2883| Target: Rs 3732| Return 29%

Karvy Stock Broking maintained its buy rating on Hero MotoCorp with a target price of Rs 3732 on the back of pick up in rural demand and well as multiple launches planned in the near-term.

The company is planning to formally launch multiple models in scooter and premium bike category in the near-term. This includes a premium Bike (Xtreme 200cc) and a Scooter (125cc). These two models are likely to be launched in domestic as well as the international market.

The company expects to garner higher volumes especially in scooter segment from these new models in the upcoming year. The company reported 14 percent volume growth in FY18. The company generates ~40 percent of its two wheeler volumes from rural areas.

Karvy anticipates demand for two-wheelers from a smaller town and rural areas to improve in the medium term on account of healthy rise in income driven by the normal monsoon leading to better crop production.

HPCL: Buy| LTP: Rs 171| Target: Rs 368| Return 115%

Karvy Stock Broking maintained its buy rating on HPCL with a target price of Rs 368. In FY18, strong operating performance was observed in the company’s refining and marketing business. HPCL has improved its refinery & pipeline infrastructure to keep in line with growing demand vis-à-vis capacity additions and product flow improvements.

Although there was a rise in the share of sour and heavy crude used, efforts made by HPCL over the past 6 years, have resulted in increasing distillate yield of HSD and total yield distillate by 6.3 percent and 2.3 percent respectively. HPCL’s core GRM of 39 percent on a YoY basis has surpassed the benchmark GRM of 25 percent YoY despite increasing crude oil prices in FY18.

HDFC: Buy| LTP: Rs 1713| Target: Rs 2201| Return 28%

Karvy Stock Broking maintained its buy rating on HDFC with a target price of Rs 2201, supported by healthy AUM growth and stable net interest margins (NIMs).

AUM has continued traction with the growth of 18 percent for another quarter. Growth is similar across an individual as well as a non-individual segment.

Individual loans, including loans sold over last year, has grown by 25 percent. Spreads are stable on a sequential as well as a YoY basis at 2.3 percent. The net interest margins (NIMs) have improved by 10 bps on a YoY basis to 3.5 percent.

HDFC has consistently met the expectations of the market in terms of consistent growth along with stable margins and stable asset quality. It is the best proxy to play on Mortgage business along with Banking, Insurance, and AMC through its subsidiaries. Value unlocking in subsidiaries such as HDFC AMC should support the valuation.

ICICI Bank: Buy| LTP: Rs 306.10| Target: Rs 450| Return 47%

Karvy Stock Broking maintained its buy rating on ICICI Bank with a target price of Rs 450 supported by stability in net interest margins (NIMs), stable asset quality as well as attractive valuations after the recent correction.

The brokerage firms also believes that ICICI Bank has already recognized a large portion of stress reflected in (1) gradual reduction in impaired loans (including watch-list and other stress pool) which peaked in FY16 and watch-list now at 90 bps of loans (2) reducing BB and below rated pool and (3) SEC filings.

Karvy maintained strong “buy” on the stock with target price of Rs. 450 valuing subsidiaries at Rs. 100 per share and core banking book at 2.0x FY20 P/B.

L&T: Buy| LTP: Rs 1221| Target: Rs 1606| Return 31%

Karvy Stock Broking maintained its buy rating on L&T with a target price of Rs 1606. L&T’s outstanding order book at the end of June 2018 stood at Rs. 2717 Bn (37% growth Vs Q1FY18) from diversified sectors while the order inflow for Q1FY19 stood at Rs. 361 Bn (3% growth Vs Q1FY18).

L&T’s diversified exposure to various sectors/geographies coupled with its excellent execution capabilities across sectors and its balance sheet strength compared to other peers in the sector has resulted in strong order book build up.

M&M: Buy| LTP: Rs 763| Target: Rs 1081| Return 41%

Karvy Stock Broking maintained its buy rating on M&M with a target price of Rs 1081 banking on new UV launches as well as robust growth seen in the tractor division.

The company plans to launch new UV models in the next 4-5 months. At the same time, it anticipates tractor industry to grow by 12-14% in FY19.

Therefore, Karvy believes M&M’s earnings and stock performance is likely to be directly influenced by the success of its new launches in UV segment and tractor industry growth in upcoming months.

Given its current low base in UV segment (~18K volumes per month), any of the new model becoming a success could easily add significant growth to its UV portfolio.

State Bank of India: Buy| LTP: Rs 262| Target: Rs 347| Return 32%

Karvy Stock Broking maintained its buy rating on SBI with a target price of Rs 347 supported by growth in retail business as well as recoveries seen in the bad loan portfolio.

For the quarter, SBI gross advances witnessed a growth of 5.49 percent YoY to Rs. 19, 90,172 Cr, with domestic advances growth of 7.21 percent YoY to Rs. 17, 23,443 crore as on June 18.

The bankruptcy process will lead to some recoveries. Karvy is of the view that the bank is likely to see one or two fairly big recoveries from these bad loans. The bank is confident about its power sector NPLs, which are going through the Samadhan scheme.

Some of these loans could get resolved during this quarter – that would not change provisioning requirements but would help in reducing the stock of bad loans at an aggressive pace.

Apollo Tyres: Buy| LTP: 202| Target: Rs 280| Return 38%

Sharekhan maintained its buy rating on Apollo Tyres with a target price of Rs 280. The company is set to clock a strong 17 percent CAGR in topline over FY2018 to FY2020 on robust domestic demand and capacity ramp up in Europe.

Ability to take price hikes amid rising raw material costs to sustain margins at 11.5-12%. With 26 percent earnings CAGR over the next two years, Apollo is likely to be the fastest growing tyre company.

Apollo remains our preferred pick in the tyre space. Sharp correction of 24 percent in the past two months offers a good entry point.

Relaxo Footwear: Buy| LTP: Rs 693| Target: Rs 913| Return 31%

Sharekhan maintained its buy rating on Relaxo Footwear with a target price of Rs 913. Increased presence in South India and consumer shift from mass to mid-range product segment would help Relaxo Footwears (Relaxo) report strong double-digit revenue growth.

Rising rubber prices to put pressure on margins in the coming quarters; increased contribution from premium products and gradual price hikes (in-line with competitive action) to support margins in FY2020 (marginally reduced estimates by 4.2%/2.7% for FY2019/FY2020 to factor in higher rubber prices).

Relaxo’s stock price has corrected from its high by 13 percent, in-line with correction in broader indices. The stock remains our preferred pick in the discretionary space due to double-digit earnings visibility in the near term.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
First Published on Oct 11, 2018 11:26 am
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