Experts are positive on the market in the medium to long term, especially after recent government measures
The market started off this week with a negative bias and continued fall for third consecutive session on October 1 as fears of more debt stress in the Indian banking system after the incident of Indiabulls Housing Finance-Lakshmi Vilas Bank and fraud in PMC Bank dented sentiment.
The short covering in late trade on Tuesday cut the BSE Sensex's loss to nearly 700 points for three straight sessions and helped it close above 38,000 levels.
This kind of sell-off is obvious after a rally of 3,000 points on the Sensex, but that does not the entire banking system is bad which has seen improvement a bit in last quarter and top of that the fall definitely created buying opportunities in various quality stocks, said experts who are positive on the market in the medium to long term especially after recent government measures.
"There has been growing concern pertaining to the Indian banks with real estate and NBFC exposure in the wake of the recent PMC and Indiabulls Housing Finance incidents. These events have led to over pessimism and estimation of another bout of fresh NPAs coming from these sectors aggravating the stress levels in the banking ecosystem. At the same time, we have a new business model emerging for banks driven by digitalization, the government's visible focus on financial inclusion and consolidation in the PSU banking space," Arun Thukral, MD & CEO, Axis Securities said.
He said while the banking sector faces near term challenges in the form of investment and consumer slowdown, it is a proxy on the Indian economy with huge opportunities in terms of penetration. "The economy needs to sustain an 8 percent growth rate to reach the $5 trillion milestone by 2025. This needs a robust banking system and in the backdrop of the government’s reform measures to improve economic growth, the outlook for the banking sector in the medium to long-term is positive," he added.
Now all eyes on RBI's interest rate decision due later this week and September quarter earnings season which will begin next week, experts feel.
Romesh Tiwari, Head of Research, CapitalAim said recent volatility in crude oil prices and the fiscal measures announced by the government will have an impact on inflation in the medium term and the fiscal deficit. Hence, he expects the MPC to be more measured in its response with a rate cut of 25-50 bps in the October policy.
As the positive momentum is expected to continue amid intermittent correction, brokerages advised buying these top nine stocks this week which could give return in the range of 13-45 percent.
Brokerage: Emkay Global
NMDC: Buy | Target: Rs 121 | Return: 26 percent
The Central Government has modified the Mineral (Mining by Government Company) Rules, 2015, by a notification issued on September 27, 2019.
This notification is positive for NMDC and MOIL in the near term, especially as several of their mines are coming up for renewal over the next two years. This saves the Kumaraswamy mines from further action by the State Government of Karnataka as it is due for renewal in October 2022. We maintain buy on NMDC with a target price of Rs 121.
Brokerage: ICICI Direct
Tata Metaliks: Buy | Target: Rs 615 | Return: 17 percent
The investment lined up in development of water infrastructure and allied projects augurs well for DI pipes demand, which is likely to grow around 10-12 percent in the medium term. In order to cater to this opportunity, Tata Metaliks has already started work on doubling its DI capacity, thereby providing healthy revenue visibility over the longer run.
We value the stock at 6x FY21E EV/EBITDA and arrive at a target price of Rs 615. Hence, we assign a buy rating to the stock. Key risk to the call is a significant increase in raw material costs and lower-than-expected increase in demand of DI pipes.
Reliance Nippon Asset Management: Buy | Target: Rs 300 | Return: 13 percent
Reliance Nippon Asset Management (RNAM) is the fifth largest AMC in India, with an AUM market share of 8.3 percent as of FY19. RNAM is strategically focused on leadership in the retail segment (40 percent of AUM) via industry leading presence in B30 cities (20 percent of AUM) through a widespread distribution network of independent financial advisors (IFAs).
Its market share in the SIP segment is impressive at 10.6%. We believe the buyout of old promoter’s stake by Nippon Life removes a substantial overhang on the stock. In addition, Nippon Life is seen aiding better flows from domestic corporates as well as offshore segment. In our opinion, this change in parentage will reduce the existing valuation discount in relative terms. The resulting multiple rerating is yet to occur in a meaningful manner. Thus, we initiate coverage on the stock with a buy rating and a target price of Rs 300.
Brokerage: HDFC Securities
Axis Bank: Buy | Target: Rs 986 | Return: 45 percent
Corporate heavy banks in the coverage (SBI, ICICI Bank and Axis Bank) have seen steady earnings normalisation over FY19. Of these banks, Axis Bank has been the top pick as we sensed DNA change at the bank (in addition to the then anticipated asset quality improvement and RoAE expansion). We evaluate the implications of the recent fund raise on the positive stance on Axis Bank.
With this Rs 12.500 crore QIP, Axis has raised funds for the 2ndtime in 2 years. While the fund raise is book-accretive and does make valuations attractive, we are surprised by the timing and large size.
Galaxy Surfactants: Buy | Target: Rs 1,834 | Return: 24 percent
Galaxy Surfactants (GSL) is a preferred global supplier of surfactants and other specialty chemicals to leading FMCG MNCs, and caters exclusively to their 'home and personal care' (HPC) segment. Long and intimate relations with its customers drive GSL’s steady volume growth, steady margins. It has a diversified portfolio of 200+ products selling across 80 countries to 1,700+ customers.
Given the secular growth opportunity and its capability to generate more than 20 percent returns on reinvested profits, GSL's current PER of 19.0/16.6x FY21/22E looks contextually low.
GSL's products are specialised (not commoditised) but lack branding and pricing power. It should trade at a multiple closer to chemical and at a discount to FMCG companies. We value GSL at 22x Sep-20E and initiate with buy at a target of Rs 1,834.
Brokerage: Elara CapitalHPCL: Buy | Target: Rs 415 | Return: 34 percent
IOC: Buy | Target: Rs 182 | Return: 23 percent
Oil marketing companies (OMC) have run up 15-34 percent in the past month on expectations of government's plans to privatize Bharat Petroleum (BPCL). Under a blue sky scenario, we estimate asset replacement cost-based value of OMC offers 134-276 percent upside over CMP and 117-178 percent over target price. We believe factors, such as non-OPEC oil supply growth outpacing global demand meaningfully in 2019 (Source: IEA), rising GRM on upcoming IMO regulation, above average H1FY20 retail margin and improving domestic oil demand growth, will play in favour of OMC.
We revise stance to positive on OMC from negative. We prefer HPCL among OMC, as its earnings are most exposed to marketing. We revise rating for HPCL to buy from accumulate and raise target to Rs 415. We revise rating for IOCL to buy from accumulate and raise target to Rs 182.
Brigade Enterprises: Buy | Target: Rs 252 | Return: 23 percent
The company has a growing annuity income portfolio, which is likely to post a 25 percent CAGR over FY19-21E to Rs 450 crore, as Tech Garden and WTC Chennai may be commercialized. Strong brand equity, rich launch pipeline (around 6 million square feet) and stable Bangalore market (high affordability) would lift residential pre-sales.
The completed annuity assets account for around 50 percent of its existing EV, implying attractive valuation for the residual business. Further, timely monetization in the hospitalization segment will unlock value. We retain buy with a revised target of Rs 252 from Rs 213 based on 1x (unchanged) NAV.
Brokerage: Prabhudas Lilladher
APL Apollo Tubes: Buy | Target: Rs 1,792 | Return: 32 percent
APL Apollo Tubes (APAT) is the largest producer of Electric Resistance Welded (ERW) Steel Pipes and Sections in India with a manufacturing capacity of 2.55 mn MTPA.
Over the next 2 years, 1) we expect earnings CAGR of 56.3 percent, 2) comfortable debt-equity ratio of 0.3x, 3) robust RoE/RoCE of 26.9/32.7 percent and 4) high free cash generation of Rs 263.8 crore which not only makes it attractively valued at PER of 12.9x FY20E and 9.2x FY21E earnings but also justifies a premium valuation. We initiate coverage with a buy and target of Rs 1792 (12x FY21E EPS).
Demand for ERW pipes is expected to grow at 8-10 percent CAGR on back of 1) substitution of wood by steel, 2) government push to boost consumption, infrastructure development, construction & agriculture, 3) shift of market share from unorganized to organised players and 4) development of new age applications such as agricultural implements, solar tracking systems, gym/sports equipments, construction equipment and automobile applications.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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.