Sumit Bilgaiyan Equity99
The Nifty has made a new life high in the week gone by and it has been making a higher top and higher bottom formation. Every small decline is being bought into by the market as supports are gradually shifting higher.
The index trades at 28x times the trailing earnings, which is the highest level in a long time. It means the market has discounted a lot of positive earnings very early while companies still need to deliver on the expectations.
Our view is that Nifty will consolidate at this level, and quality midcaps and smallcaps that have been left behind by the biggies will also rally.
On the macro fronts, the Index of Industrial Production (IIP) for June expanded at a robust 7 percent led by strong growth in manufacturing and capital goods sector, which contributes 78 percent to the index. The IIP had risen by 3.2 percent in May which was dragged down by sluggish growth in manufacturing and power sector.
Looking at the monsoon and favourable input prices compared to previous month, we believe these numbers are quite sustainable. It is also necessary to consider the impact of inflation in this season. We are expecting a slight rise in the Wholesale Price Index (WPI) but it will be in the higher range of the Reserve Bank of India (RBI).
Looking at IIP and GDP numbers, one thing is quite clear that India is on a high growth trajectory.
From the earnings point of view, there are a bunch of companies which are going to announce their results include Cadila Healthcare, Tata Steel, Tata Chemicals, Grasim and Sun Pharma.
Here is the list of stocks that could give better returns in short term:
L&T Technology Services (LTTS) is the third-largest pure play ER&D services provider globally. Its broad-based services portfolio, presence in underpenetrated market segments and deep-rooted client footprint, 43 of the top 100 global ER&D spenders, places it well to address the opportunity emerging from the shifts in global ER&D spend.
During Q1FY19, the company had more than double net profit while it’s revenue increased by 40 percent. On a sequential basis, revenue and net profit increased by 9.2 percent and 24 percent, respectively.
In US dollar terms, revenue stood at $169 million; growth of 5.6 percent QoQ in constant currency, 32 percent YoY. EBITDA margin improved 170 bps at 17 percent from 15.3 percent in previous year quarter.
LTTS has won five multi-million dollar deals across process industry, telecom & hi-tech, industrial products and transportation.
We believe LTTS is well set to tap the shift in ER&D spending from products to software and services, and a rising preference for third-party players.
Suven Life Sciences is a pharmaceutical research company that leverages its innovation capability to undertake NCE-based CRAMS projects involving discovery and development of molecules for innovator companies.
During Q4FY18, its net profit increased by 56 percent to Rs 62.51 crore from Rs 40.07 crore on YoY basis on 19 percent higher income of Rs 208.29 crore.
It is continuous dividend paying company. It has paid 100 percent dividend in FY17 & paid 150 percent dividend in FY18.
Suven Life Science is on a path to strengthen its core revenue from CRAMS business. The successful completion of trials for SUVN502 would lead to monetisation of this molecule and ultimately boosting its earnings.
SUVN502 which is a lead molecule for patients with moderate Alzheimer’s, SUVN-502, is in phase-2A. Management expects enrollment to be completed soon and results is expected to be out in Q2FY20. We are recommending a Buy on Suven Life Sciences.
BPCL is one of the fastest growing state run oil marketing companies. It is created its own niche by being first among peers. Recently it has acquired a 21.1 percent stake in payment bank Fino Paytech Limited, the largest Business Correspondent in Asia.
BPCL will reap huge benefits from this investment as the bank will start expanding its operations. BPCL has posted a quite healthy growth in Q1FY19. Its profit came in at Rs 2,293.26 crore against Rs 744.56 crore on YoY basis while income increased by 23 percent at Rs 82,978.96 crore against Rs 67,422.95 crore.
GRM (gross refining margin) which indicates the difference between the cost of crude oil processed and the prices of refined products, came in at $7.49 per barrel, up from $4.88 per barrel a year ago, which clearly shows that BPCL is on a fast track of achieving better operational efficiency. On back of this numbers and reduce crude oil prices we are recommending BPCL.
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