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Analysts price in economic impact of second COVID wave: Here are 14 stocks for stable returns

If the second wave of COVID-19 extends beyond May-end, the hit on economy and corporate earnings could be worrying, experts say. They name 14 stocks with strong fundamentals to look at for long term

April 30, 2021 / 11:10 AM IST
Economy

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The partial lockdowns and restrictions announced by various state governments to curb the spread of second wave of COVID-19, are likely to have some impact on the economic growth.

Analysts have now begun to discount some cuts in GDP growth and in corporate earnings.

Rating agency ICRA on April 28 revised down its forecast for India's GDP to grow by 10 to 10.5 percent in 2021-22 from the earlier projection of 10-11 percent.

Global firms Goldman Sachs and Nomura had earlier cut their GDP forecast for the fiscal year 22, which began April 1.

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“The sharp slowdown in ultra-high frequency indicators since April and extended restrictions does suggest downside risk to our GDP growth projection of 11.5% YoY in 2021 vs -6.9% in 2020,” said Nomura report.

Meanwhile, Brickwork Ratings in a note highlighted that the outlook for growth continues to remain positive mainly due to the low base, and we revise FY22 GDP growth to 9% from the earlier estimates of 11%.

If the economy takes a hit, then corporate earnings are bound to get affected in FY22, suggest experts.

“If the COVID issue gets resolved by say mid-May, then we can still make up for the shortfall in economic output. However, if this extends beyond May-end, there could be renewed fears on the economy and asset quality front,” Deepak Jasani, Head of Retail Research, HDFC securities said.

“Apart from the risks to the Nifty EPS, valuation can also undergo a change depending on the interest rate trajectory globally and inflation moves locally,” he said.

Here are suggestions from experts on stocks that have strong fundamentals and could give stable returns despite COVID-led uncertainty:

Expert: Binod Modi, Head - Strategy at Reliance Securities

As the threat of extended lockdown creates some amount of uncertainty about earning recovery, midcaps and smallcaps may underperform in the near term.

However, any sharp correction in quality midcaps should be bought out as prospects of earnings recovery still looks to be bright.

UltraTech Cement, Ashok Leyland, KNR Constructions and L&T:

We believe sectors which are considered to be beneficiaries of capex recovery, should do well in FY22. We maintain our positive view on companies like UltraTech Cement, Ashok Leyland, KNR Constructions and L&T, said Modi of Reliance Securities.

Expert: Anuj Jain, Co-founder & Research Head, Green Portfolio Services

JSW Energy

Investors should aim at transforming portfolio with renewable segment stocks in line with government's initiative, said Jain.

The company has a strong balance sheet with improved profitability and strong parent support.

Jubilant Ingrevia:

Jubilant Ingrevia was recently demerged from Jubilant Lifesciences. The stock is available at a preice-to-earnings (PE) of ~17, which is very lucrative for the chemical stocks.

CESC:

Center will privatise discoms of UT and States will privatize many metro cities. CESC, already manages many discoms like Kolkata. We think a major share of this privatisation could be won by CESC, said Anuj Jain. Besides it is available at very low PE thus downside is limited.

J. Kumar Infraprojects Ltd:

Undervalued infra players available at a discount compared to their peers. Unlike industry which is marred by debt, JKIL is a debt-free company and existing order book of more than Rs. 12,000 crores give us sufficient evidence that this share will perform well.

Expert: Divam Sharma, Co-founder, Green Portfolio Services

Tata Consumer:

Tata consumer can be considered as an investment opportunity even at current levels as investors will continue to consume staples and cook at home.

JSW Energy:

JSW Energy can be considered at current levels as power consumption will remain robust with industries not foreseen to be facing restrictions, spike due to summer season, they have long term PPAs for most of their power plants, and are trading at comfortable valuations.

Aarti Drugs:

Aarti Drugs can be looked at at current levels considering exposure to API’s, speciality chemicals, and pharma intermediates. The stock is trading at a comfortable valuation and is likely to perform well as market's focus shifts towards medical care.

Expert: Gaurav Garg, Head of Research at CapitalVia Global Research Limited

Dr Reddy Laboratories:

Pharmaceutical is a space where I am quite comfortable keeping current situations in mind. One of leading Pharma player and key role in COVID-19 Vaccine.

Technically, the stock has broken its weekly consolidations and might see an upside once the stock moves above 5000. Recent volume additions in stock might help the stock to gain momentum. Stock is trading above its important moving averages.

Dr Lal Path Labs:

Emerging COVID cases, particularly in this second wave, has had a positive impact on diagnostic players.

Among them, Dr LalPath labs is placed well and we expect decent upside from the current levels, said Gaurav Garg of CapitalVia Global. This stock has the potential to perform exceptionally well this year, too.

Hindustan Uniliver:

FMCG giant might not be adversely affected by this second wave of COVID-19. The company has a strong supply chain and demand might be intact.

The stock has bounced from its important moving average and showing a clear uptrend which might be sustained for the next few months.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Kshitij Anand is the Editor Markets at Moneycontrol.

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