Crude oil prices and rupee movement amid trade tension between US-China and US-Iran are likely to keep markets volatile, an expert said
After hitting record highs in early June, the benchmark indices are in a consolidation mode. Experts largely expect the consolidation to continue in coming sessions, at least till Union Budget scheduled on July 5.
If Union Budget is in line with expectations then there could be some more profit booking and consolidation followed by the focus on first quarter FY20 earnings in July, experts said.
"Going forward, we maintain a cautious stance on the Indian markets. The near-term movement is likely to be driven by monsoon progress (which has been delayed) as well as global indicators," Jayant Manglik, President - Retail Distribution, Religare Broking told Moneycontrol.
Crude oil prices and rupee movement amid trade tension between US-China and US-Iran are likely to keep markets volatile, Manglik added.
But, cautious trade does not mean that the market will give fewer opportunities to make money. In fact, there are ample opportunities in the market right now but one should be selective and stick to quality stocks, experts advised.
"In the last 12 months, amidst election-related uncertainty, sharp volatility in crude oil and other raw material basket, valuations of mid and smallcaps have corrected sharply compared to largecaps. Now, with election uncertainty behind and cyclical recovery in sight, there is a relatively better probability of mid and smallcaps participating positively," Kartik Mehta, Vice President – Fund Management - Equity, IDFC AMC told Moneycontrol.
The broader markets should take cues from monsoon and Budget and if there are no negative surprise comes then post that they may start performing decisively, he said.
Here are top 10 stocks where brokerages initiated coverage with a buy call in June:
Brokerage: Antique Stock Broking
Phoenix Mills: Buy | Target: Rs 800 | Return: 26 percent
Phoenix Mills is a leading real estate developer with leadership in the retail segment and a track record going back two decades. Although PML is the largest retail mall operator in the country, it has a diversified portfolio of retail, office, and residential assets
In addition to the existing annuity assets, PML is set to add 4.90 million square feet of mall space in five different cities and 0.96 million square feet of office space with another 2.7 million square feet under planning (retail and office).
RITES: Buy | Target: Rs 343 | Return: 19 percent
Since the listing in July 2018, the market cap of RITES has soared 35 percent. The state-owned enterprise is engaged in consultancy and engineering of projects across infrastructure vertical.
Using nominated orders from the ministry of rails, over the past nine years, the Gurugram-based company has grown steadily with revenue/net profit CAGR of 10 /15 percent per annum.
At the end of FY19, the company had a net worth of Rs 2,300 crore, with cash/cash equivalents of Rs 3,400 crore (which includes cash from clients, where interest earned is passed on). Thereby, headline return ratios do not reflect the true potential of this asset-light business.
With the newly-formed government's $1.44 trillion infrastructure expenditure plans, RITES stands as a proxy for railway/metro/road capex. We initiate coverage on the stock with a buy.
Brokerage: IDBI Capital
Jubilant Life Sciences: Buy | Target: Rs 620 | Return: 29 percent
Jubilant Life Sciences is an integrated pharma and life sciences player focused on niche segments like –radiopharma, allergy therapy, CMO of sterile injectable, other pyridine based and acetyl based products. Jubilant emerged as a key beneficiary of uptick in specialty pharma, generics and favourable pricing environment in its chemical business during FY16-19 (revenue/Adjusted PAT CAGR of 16 percent /31 percent).
We expect revenue and adjusted PAT CAGR of 9 percent and 17 percent over FY19-21, factoring in around 7 percent revenue fall in generics business due to USFDA’s Warning Letter (WL) on its key facility. We initiate the coverage on Jubilant with a buy rating and price target of Rs 620 based on SOTP method.
Brokerage: PhillipCapital India
Kalpataru Power Transmission: Buy | Target: Rs 670 | Return: 32 percent
KPP is a unique play on key infrastructure-sector segments, backed by a management that has consistently demonstrated its ability to incubate new businesses, expand margins and manage working capital.
A major drag on KPP so far has been its capital deployment into asset-ownership and non-core diversification, which we believe should peak and reverse in FY21, leading to a substantial release of cash. We estimate healthy 19 percent CAGR in FY19-22 earnings, while the stock trades at 12x FY21 PE against its long-term average 16x.
We initiate coverage on Kalpataru Power Transmission, a leading T&D equipment and infrastructure conglomerate with a buy rating and an SOTP-based target price of Rs 670.
Brokerage: ICICI Securities
Varun Beverages: Buy | Target: Rs 1,106 | Return: 22 percent
Varun Beverages, a major player in the soft drink market, has built multiple moats and is well positioned to unlock its growth potential in India after the acquisition of PepsiCo franchise rights in West and South India.
Varun will also benefit from the economies of scale post consolidating West and South India. Commencement of Pathankot facility in CY19 will improve margins as well as asset turns.
We expect Varun to report earnings CAGR of 34 percent over CY18-CY21E. We initiate coverage on Varun with a buy rating and DCF-based target price of Rs 1,106.
Brokerage: Nirmal Bang
Cadila Healthcare: Buy | Target: Rs 315 | Return: 35 percent
We initiate coverage on Cadila Healthcare with a buy rating and target price of Rs 315 based on 20x FY21E EPS.
Earnings growth though is likely to be muted over the next two years but valuations are favourable as the stock has corrected about 30 percent from its recent highs.
Chalet Hotels: Buy | target: Rs 395 | Return: 23 percent
We initiate coverage on Chalet Hotels with a buy rating and a target price of Rs 395 based on SOTP valuation of hospitality and rentable assets.We are optimistic on the stock due to:
(1) Cyclical upturn in the hotel sector along with the favorable demand-supply dynamics, which are expected to drive the occupancy rate and average room rate (ARR).
(2) Better locations and strong brand have ensured the higher occupancies relative to its peers in the micro market.
(3) Strong support from the promoter group (K. Raheja experienced real estate developer) has helped in acquiring land at good locations.
(4) Comfortable balance sheet with net debt to equity ratio at 0.83x in FY19.
(5) Expected strong growth in operating cash flow to help in capex.
Brokerage: JM Financial
Praj Industries: Buy | Target: Rs 160 | Return: 15 percent
Praj Industries Limited is an engineering firm that provides solutions for distillery, brewery and waste-water treatment. Praj has established a global leadership in first generation (1G) ethanol technology and successfully initiated the second generation (2G) ligno-cellulosic ethanol programme.
Praj has received a strong order inflow in FY19 worth Rs 1,394 crore (+34 percent YoY) mainly through 1G and 2G orders. The company has a 60 percent market share in both 1G and 2G markets in India.
We expect revenue and PAT CAGR of 17.8 percent and 29.1 percent over FY19-21E and recommend buy with a target of Rs 160 (PE multiple 26x to FY21E EPS INR 6.2).
Natco Pharma: Buy | Target: Rs 640 | Return: 24 percent
We initiate coverage on Natco Pharma with a buy rating and a target price of Rs 640.Natco is an outlier among peers on multiple fronts:
a) Best-in-class margin profile (FY20E EBITDA margin & Net Profit margin at 33.6 percent and 28.1 percent, respectively),
b) A risk mitigated business model with its marketing partner in the US being responsible for litigations and ANDA filing and,
c) Strong balance sheet.
Given Natco’s strong pipeline in high-barrier complex generics and track record of identifying and exploiting niche opportunities so often, we believe that the CMP does not capture any potential upside to Natco’s base earnings and offers an attractive entry point.
AU Small Finance Bank: Buy | Target: Rs 880 | Return: 27 percent
We initiated coverage with a buy call on the stock with a target price at Rs 880 per share.
The company has a legacy of multiple decades of existence as a successful NBFC. It continues to deliver high loan growth without any asset quality incident.
Lucrative 30 percent plus asset CAGR still remains plausible for an extended period.Disclaimer: The views and investment tips expressed by brokerages and experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.