After falling over 1,000 points (Nifty) from all-time highs of June, the Indian stock market has largely remained rangebound due to global and domestic factors such as slowing economy, poor corporate earnings and US-China trade worries.
Nifty, Sensex as well as midcap indices have wiped off one percent each amid FIIs sellout that started after the Budget on July 5. However, DIIs have helped offset some pain as they remained net buyers during the same period.
While government took stock of the dwindling outlook and took a slew of measures to revive the economy, the sentiment remained sombre, although some support was seen on the downside.
The rangebound trade might mean that the Street is in wait-n-watch mode to see actual impact of measures and rate transmission on economy, though the liquidity issue has since been resolved, experts feel.
The focus for the next few days would shift from geopolitics to global central banks as the ECB meeting is scheduled on September 12 and the US Fed would meet on September 17-18, said Siddhartha Khemka, Head - Retail Research at MOFSL told Moneycontrol.
Most experts believe it is the right time to pick quality stocks, even though it is a rangebound market.
Here are 8 stocks where brokerages initiated coverage in September with a buy rating:
Brokerage: PhillipCapital
Coromandel International: Buy | Target: Rs 500 | Return: 32 percent
Coromandel International is the leader in non-urea products among listed companies with backward integration in producing captive phosphoric acid, presence in agrochemicals, and a unique product offering. Therefore, it has always traded at a premium to Zuari Agro, GSFC, Mangalore Chemicals, Deepak Fertiliser, and RCF.
However, global phosphatic fertiliser companies such as Mosaic, Nutrien, and PhosAgro trade at a marginal premium to Coromandel International due to their backward integrated operation (like own phosphate rock mining).
We expect Coromandel International to continue commanding premium valuations among Indian peers, but concerns about higher inventories in various channels are likely to keep valuations under check in the short-term (FY20).
Chambal Fertiliser: Buy | Target: Rs 200 | Return: 28 percent
Chambal Fertiliser is moving out of non-core businesses and has successfully added Gadepan 3, which should lead to better revenue and margins by FY20-22. We expect additional urea sales volumes to also support its trading business (non-urea grades; DAP and NP/NPK/NPS), helping Chambal Fertiliser to expand its market share.
We see revenue/EBITDA/PAT CAGR at 8/14/17 percent in FY19-22, largely driven by Gadepan 3. Trading business is likely to see slower volume growth in FY20, and margins will be supported mainly by Gadepan 3.
Its addition of the lucrative Gadepan 3 plant and opportunities for better trading are likely to drive growth in the visible future.
UPL: Buy | Target: Rs 730 | Return: 24 percent
We expect UPL's revenue/EBITDA CAGR at 25/28 percent in FY19-22 led by Arsyta's integration supporting growth and margins. Poor demand prospects in North America and parts of Europe, and erratic weather in India, remain major risks that are likely to lower growth for UPL in FY20.
Domestic peers always traded at a premium to UPL due to their larger focus on the domestic market. Also, UPL always commanded a premium to global peers due to its consistent growth outperformance, but short-term concerns about demand (H1FY20) and high net debt/EBITDA (post Arysta) are keeping its valuation in check.
Global peers such as FMC, BASF, and Nufarm traded at discount to UPL due to their low growth and high operational cost. We assign 9x Sept FY21 EV/EBITDA to arrive at target of Rs 730 (implying 16x Sept FY21 PE).
Brokerage: Anand Rathi
ICICI Bank: Buy | Target: Rs 511 | Return: 30 percent
ICICI Bank is strongly positioned in most of the retail banking products along with the diversified nature of its loan portfolio. This has allowed the bank to register strong advances growth of 11 percent CAGR in the past four years with asset quality staying under control.
Considering the strong brand franchise, improving asset quality trends and strategy focus, the bank is well poised to deliver consistently with improving return ratios.
We expect company to grow its standalone NII at a CAGR of 17 percent over the next two financial years. On profitability front, we expect company to report standalone PAT CAGR of 111 percent over the next two financial years.
With declining credit cost on account of lower slippages and much adequate provision coverage ratio, we believe ICICI Bank is favorably positioned to deliver superior profitability and return ratios.
Tata Consultancy Services: Buy | Target: Rs 2,510 | Return: 15 percent
Tata Consultancy Services (TCS) has grown consistently at industry leading growth rates on the back of its strategy of adding new clients, winning large deals and co-innovating with customers.
In constant currency, revenue has registered a growth of 10.6 percent YoY in Q1FY20. Net Income for the quarter came in at Rs 8,131 crore, up by 10.8 percent YoY.
TCS strong total contract value (TCV) wins, improving YoY growth in BFSI, all-round vertical growth, rising digital revenue and healthy Q4 exit rate drive confidence on underlying momentum, and we expect the IT major to comfortably post double-digit revenue growth in FY20E.
Brokerage: Equirus
PI Industries: Long call | Target: Rs 1,890 | Return: 52 percent
We expect a 23 percent revenue CAGR over FY19-FY22. Revenue growth would drive profit CAGR of 27 percent.
The stock doesn't trade cheap and note that it has never traded cheap. Its 21 percent return on equity is likely to help sustain the 35x trading multiple.
Brokerage: Indsec Securities and Finance
Natco Pharma: Buy | Target: Rs 660 | Return: 13 percent
Natco is expanding its presence in the emerging markets with FTF launches, niche launches in US with more than 20 para IV filings in pipeline and expansion of CnD portfolio in India.
Currently, Natco is trading at 40 percent discount to its 5-year average PE, with large ticket size launches in the coming year.
Brokerage: Sushil Finance
Atul Limited: Buy | Target: Rs 4,424 | Return: 26 percent
Going forward we expect the company to grow at a rate of 13.5 percent in FY20 and 8.9 percent in FY21 and the EPS for FY20 and FY21 is expected to be Rs 182.64 and 212.78, respectively. The growth will be majorly backed by increase in the volumes in the business with stable prices rather than the increase in prices in the previous year.
The company is expected to realize the unrealized sales potential of Rs 544 crore in the next 12-16 months which was as a result of debottlenecking of plants and increasing the existing capacities.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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