Bulls have retained tight control over Dalal Street so far in January as well despite intermittent attempts by bears. The market continues to make fresh record highs backed largely by foreign inflows.
The BSE Sensex on January 11 crossed the crucial 49,000-mark, adding 7,000 points in the last two months when it surpassed January 2020's record high, while the Nifty50 moved closer to 14,500 levels, nearly doubling from its March 24's low point.
"USD depreciation and high liquidity are the key reasons behind FII flows in India. Recent discretionary consumption trends in the domestic market are also encouraging and point towards normalising consumption trends in India," Ashutosh Tiwari, Head of Research at Equirus Securities told Moneycontrol.
"These along with expected pick up in infrastructure and construction are positive signs for economy recovery next year. We expect FII flows to remain healthy as long as we don’t see a big reversal in USD, however, the quantum of flows may taper off," he said. FIIs net bought more than Rs 1.7 lakh crore worth of shares since the start of 2020.
The initial rally (after March low) was driven by few sectors like IT and Pharma along with index heavyweight Reliance Industries, the same was turned into a broad-based rally by the end of September 2020 due to participation from other sectors that was impacted by the COVID-19 and lockdown.
As a result, the BSE Midcap index surpassed its record high level seen in 2018, while the Smallcap is still more than 1,000 points away from previous record high levels.
India controlled its COVID-19 infections compared to most impacted countries including the western world. The government has announced several measures to boost the economy with strong RBI support in terms of liquidity, lower interest rates, vaccine progress, and rising hope for economic and earnings growth in coming quarters, which all pointed towards the good going ahead, experts feel.
Poonam Tandon, CIO at IndiaFirst Life Insurance Company, with a long term view, believes the focus in 2021 will be more on stock picking. "Investors will need to focus on fundamentals of companies and sectors for results and asset allocation will also gain importance."
Moneycontrol collated a list of 10 stocks on which brokerages initiated a buy call with a 10-30 percent return:
HDFC Life Insurance Company
"HDFC Life currently trades at around 4.3x FY23E embedded value (EV), which is at a premium compared to its peers. Given the superior business franchise and continued focus on profitability, valuations are expected to remain at a premium," ICICI Direct said.
Considering the current business franchise and building anticipated improvement in business momentum and profitability metric, the brokerage initiated coverage on the stock with a buy rating and a target price of Rs 820 per share, valuing the company at 5.0x FY23E EV.
Global brokerage house Jefferies initiated coverage on Petronet LNG with a buy rating and target of Rs 335 per share.
"Regas tariff at Dahej is 10 percent below its nearest competitor. The 5 percent annual tariff hike in Dahej is far ahead of the 3 percent annual CAGR in fixed costs per unit. Ban on industrial use of polluting fuels & reduction of import duty on LNG are supportive. City gas distribution (CGD) and refining together should help drive 6.5 percent CAGR in LNG demand over FY20-24," CNBC-TV18 reported quoting the brokerage.
"Hospital business is well-positioned to return to profitability with strong industry tail. Hospital capacity expansion of 1,300 beds spread over the next five years with healthy utilisation will post revenue growth of 6.5 percent in FY20-23 and EBITDA margin expansion to 16 percent. Diagnostic business is ripe for strong decadal growth as spending on preventive tests increases, organized players gaining market share," said SPA Securities.
"SRL offers a comprehensive range of investigations in pathology and imaging over 3,700 diagnostic tests, and is expected to grow revenue by 8 percent in FY22/23 along with 120 bps margin expansion by FY23," said the brokerage which initiated coverage on Fortis Healthcare with a buy recommendation and a target price of Rs 200, valuing hospital business at 17x of FY23 EV/EBITDA and diagnostic business at 35x of FY23 EV/EBITDA.
Prabhudas Lilladher initiated coverage on Dalmia Bharat with a buy rating, underpinned by strong earnings growth and compelling valuations post mutual fund fiasco.
"Led by strong market positioning and competitive cost structure, company's margins rank in top quartile of the sector. To further consolidate its position in East region, company is expanding East plant's capacity by 75 percent or 8mnt with its All-India capacity increasing by 27 percent to 37.5mnt. This would drive 13/31 percent CAGR in EBITDA/PAT for FY20-FY23E. We value the stock at Rs 1,480, EV/EBITDA of 9.0x FY23e (25 percent discount to pre-MF episode valuations of 12.0x)," said the brokerage.
"We expect strong demand traction over the next few years due to: a) VBL being a monopoly play in PepsiCo India’s business, b) rising penetration on the back of a robust distribution network, c) diversifying product portfolio, d) greater refrigerator penetration in rural/and semi-rural areas per household and higher power availability hours, and e) increasing discretionary spending per capita," said Motilal Oswal which initiated buy rating on Varun Beverages with a target of Rs 1,100 per share.
"Diversification in other businesses has made a little dent to earnings for its agri-machinery business accounted for over 83 percent of allocable EBIT last fiscal, thus lending its fortunes to no small dependence on vagaries of monsoons, agricultural reforms, rural spending et al. Striking 'velocity' in Indian tractor industry over the last few months have little stymied growth prospects for next fiscal; Agri machinery revenues are estimated to rise by some 12 percent next fiscal. Balancing odds, we assign a buy rating on the stock with a target of Rs 1,610 based on 20x FY22e earnings over a period of 9-12 months," said CD Equisearch.
"RBL Bank is a mid-sized private bank undergoing its second big transformation, this time from bulky corporate banking exposures to focusing on key retail-asset niches. The credit-cards and microfinance (MFI) businesses have been built in the past three to four years and gained scaled through tie-ups, and will drive the bulk of profitability going forward. The consolidation of corporate book growth is providing the bank an opportunity to work on its liability franchise, and delivery on liabilities will be key to further rerating," said CLSA which initiated coverage on RBL Bank with a buy rating and Rs 330 target price.
Zee Entertainment Enterprises
Prabhudas Lilladher initiated coverage on Zee Entertainment Enterprises with a buy rating amid 1) concrete steps taken to strengthen governance and enhance disclosure levels 2) consistent improvement in viewership share (increased from 11.6 percent in CY11 to 18.4 percent in CY19) and 3) likely emergence of ZEE5 as future growth engine in the changing global content consumption paradigm.
"We believe ZEE5 is one of the strongest content platforms and can be a major growth and re-rating driver in coming years. We initiate buy with a target of Rs 290. Non-core investments, related party transactions, contingent liabilities, and accelerated inventory amortisation are key risks to our call," said the brokerage.
Japanese research firm Nomura initiated a buy call on the stock with the target at Rs 475 per share. The firm is of the view that the company's pricing power has strengthened and margin has been rising.
After success in Morbi, pollution focus is likely in more areas, said Nomura, adding the company's overall margin may average at Rs 5.40/scm in FY21. The brokerage sees low threat of large third-party volumes in the near term, according to a CNBC-TV18 report.
Repco Home Finance
Sharekhan initiated coverage on Repco Home Finance with a buy and target of Rs 330. "Repco is an attractively valued housing finance company (HFC) with a niche loan book (salaried & professional class borrowers), stable asset quality, strong ratings, and good return ratios. With disbursements gaining pace since September, the company returns to growth in FY2021E itself; collection efficiency at 93 percent in September," the brokerage reasoned.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.