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As market consolidates these 10 large, midcaps may return 10-29% in next 12 months

Experts expect stock-specific activity to continue and as it is a 'buy of dips' market, recommend buying quality stocks for better returns

November 18, 2019 / 10:46 AM IST
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Todays L/H

The market continued to consolidate for the second consecutive week after rallying about 12 percent in the last two months on the back of constant government measures and better-than-expected corporate earnings.

Experts expect the consolidation to continue due to the absence of any major domestic cue during the month, while global news flow could likely impact the markets.

"Since the result season is almost over, Mr Market will take cues from international factors namely US-Sino trade deal, Trump’s impeachment and the nitty-gritty of long-awaited Saudi Aramco IPO. Lack of positive triggers may certainly keep markets dull and rangebound," Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote told Moneycontrol.

According to experts, stock-specific activity with a "buy on dips" strategy for quality stocks might be the way to go in the current scenerio.

"Stock specific movements will be more prevalent than movements in the market as a whole. Investors should wait patiently for corrections to unfold which may take longer time. This is best formulated by Warren Buffett that ‘The stock market is a device for transferring money from the impatient to the patient.’ In general, markets will unlock opportunities at reasonable levels in quality businesses," Modi said.


Ajit Mishra, Vice President - Research at Religare Broking also shared a similar sentiment, suggesting investors to focus on stock selection and position management.

Here are 10 largecap and midcap stocks which could give 10-29 percent return in the next 10-12 months:

Brokerage: Karvy Stock Broking

Relaxo Footwears: Buy | Target: Rs 638 | Return: 17 percent

With growth rates and return ratios better than the market leader (Bata), we believe the company is in a strong position to further strengthen its place as a dominant player in the footwear industry and close in on the revenue scale and size of that of Bata.

We believe Relaxo will be the best performer in the listed footwear space. We value the stock at P/E of 50x (5 year average +1sd) on FY21E EPS of Rs 12.8 and recommend buy, with a target price of Rs 638. Risks to the call include slowdown having a deeper impact on domestic consumption and rise in raw material prices.

Shriram Transport Finance: Buy | Target: Rs 1,332 | Return: 18 percent

Due to weak commercial vehicle sales in first half of FY20, management has revised downward AUM growth guidance from 15 percent to high single-digit for FY20 which we believe is achievable on account of high share of pre-owned vehicles in asset mix aided by potential pre-buying ahead of implementation of BS-VI (from April 2020 onwards) as vehicle prices are expected to increase 10-12 percent post BS-VI.

Going forward, we expect AUM to grow at a CAGR of 12 percent supported by expanding network expansion and improved economic environment. At CMP of Rs 1,128, STFC is attractively priced trading at 1.2x FY21E BV and we initiate coverage on STFC with buy recommendation and a target price of Rs 1,332 per share, which represents an upside potential of 18 percent.

Key risks are subdued economic growth, continued de-growth in new CV sales, lack of pre-buying ahead of BS-VI implementation and deteriorating asset quality.

Brokerage: SMC Global

Tech Mahindra: Buy | Target: Rs 914 | Return: 20 percent

Healthy revenue growth, a record deal, steady improvement in the enterprise segment and likely uptick in momentum in telecom driven by deal wins would be key triggers for growth. As per the management, Tech Mahindra's consistent large deal win is a testimony of differentiation in the marketplace.

The company is confident about its growth outlook for both communications and enterprise businesses. 'Digital' continues to be a strong growth driver, as it helps its customers in their transformation journey. Thus it is expected that the stock may see a price target of Rs 914 in 8-10 months time frame on the targeted PE of 16.56 times its FY21(E) EPS of 55.19.

KEC International: Buy | Target: Rs 335 | Return: 21 percent

The company is continuously performing well and delivering in all the three parameters of revenue, profitability and order intake. Transmission and distribution (T&D) business have delivered stellar performance, backed by robust execution in SAARC and the Americas. The Railway business continues its growth momentum as it expands portfolio in other segments.

The management of the company expects international business to pick up with large order inflow from Jordan, Saudi, Far East (Indonesia, Thailand), etc and international T&D, substations and civil infra will be key drivers for FY20. Moreover, the company has maintained its annual guidance of 20 percent growth for FY20 revenue. We expect the stock to see a price target of Rs 335 in 8-10 month time frame on a one year average P/E of 12x and FY21 (E) earnings per share of Rs 27.94.

Brokerage: Anand Rathi

HDFC Life Insurance: Buy | Target: Rs 710 | Return: 23 percent

HDFC Life Insurance Company Ltd is one of the leading players in the domestic life insurance sector with a strong presence across India offering 40 individual and 11 group products in its portfolio, along with 8 optional rider benefits.

The company has consistently grown over the years with adverse and innovative product mix and multi-distribution channel including agency, direct and bancassurance.

In terms of macro scenario, the domestic life industry has plenty upside as India remains significantly under-insured, both in terms of penetration and density. Further improving life expectancy, young Indian population, increasing disposable income and rising awareness of risk protection will continue to be the demand drivers in the sector.

Given HDFC Life’s solid product mix, diversified distribution network, a track record of consistently strong performance and favourable macro traits, we believe the company is well-positioned for long term growth and reiterate BUY rating on HDFC Life Insurance Company Ltd. With a target price of Rs 710 per share.

HDFC Bank: Buy | Target: Rs 1,410 | Return: 10 percent

HDFC Bank has reported net interest income growth of 14.9 percent in its Q2-FY20 standalone results at Rs 13,515 crore as against Rs 11,763 crore in Q2FY19, driven by asset growth and a core net interest margin of 4.2 percent. Provisions remained elevated at 30 bps of advances to Rs 2,701 crore. PAT growth continues to stay healthy at 26.8 percent YoY to Rs 6,345 crore.

Going forward, with healthy balance sheet growth and superior asset quality & management, we believe the bank is well poised to deliver consistently with margin leadership & robust return ratios. We continue to remain positive on the company over medium to long-term perspective and maintain our BUY rating on the stock with a target price of Rs 1,410 per share.

Hindustan Unilever: Buy | Target: Rs 2,422 | Return: 18 percent

Over the past several years, HUL has exhibited a decent track record in terms of revenue and margin growth. In Q2FY20, HUL showed revenue growth of 6.7 percent YoY while EBITDA and PAT grew 21 percent and 21.5 percent YoY, respectively, despite near term weak rural growth and economy slowing down, HUL had an impressive volume growth of 5 percent YoY on a large base.

While current macro-economic conditions are likely to keep subdued demand in the near term, we remain optimistic that the company will outgrow the industry. HUL is the largest FMCG Company with one of the largest footprints in terms of products and distribution network and its strategy to Target volume growth, should drive healthy growth in the medium to long term.

At CMP the stock is trading at 69.0x FY20E EPS and 60.0x FY21E EPS. We recommend buy on the stock with a target price of Rs 2,422 per share.

Brokerage: BP Equities

Castrol India: Buy | Target: Rs 171 | Return: 18 percent

Castrol India is a well-established player in the lubricant oil segment by virtue of its recognized brand and diversified categories across automotive vehicles. The company's strong focus on the expansion of distribution chain coupled with the ability to increase touchpoints provides significant opportunity to grow sales and expand margins.

Owing to ample opportunities and its consumer outreach helps in gaining visibility and higher thrust for future growth. On the valuation front, we have valued the company based on 20x PE of CY20E and assign a Buy rating on the stock with a target price of Rs 171.

Brokerage: Bonanza Portfolio

Avenue Supermarts (DMart): Buy | Target: Rs 2,261 | Return: 21 percent

Avenue Supermarts has a strong track record of high growth and profitability, its revenue and PAT have grown at 24 percent and 37 percent, respectively in the past five years. Its EBITDA margin is also higher among peers due to better asset turnover and lean cost structure. The recent strategy revamps to include leased stores along with owned ones will accelerate its pace of growth.

With 189 DMart stores in key location, plans to expand on lease-model, launched 'DMart Ready' stores in Mumbai, opening a new store within 3-5kms, strong track record of high growth and profitability and healthy operating profit margins, we value Avenue Supermartsat 113.0x FY21E EPS of Rs 20.00 to arrive at target price of Rs 2,261.

Titan Company: Buy | Target: Rs 1,490 | Return: 29 percent

Titan is planning to regionalise the wedding collection across the key states such as Uttar Pradesh, Bihar, Jharkhand, Odisha, West Bengal and Andhra Pradesh, going ahead. It is expected to come up with an affordable diamond collection to fill the key gap in the studded jewellery segment. Titan is planning to leverage the occasion of 'Engagement' collection with the target of 4x growth in FY20E.

With changing consumer preferences, increasing demand for diamond-studded jewellery, which augur well for Tanishq, revenue growth for second half of FY20 will be back on higher wedding dates and festive season, higher average annual store addition target and world's fifth-largest watch manufacturer, we value Titan at 71.5x FY21E EPS of Rs 20.80 to arrive at target price of Rs 1,490.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Sunil Matkar
first published: Nov 18, 2019 10:36 am
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