The measure taken by the government to boost a slowing economy have also strengthen the bulls. The Sensex and the Nifty have gained nearly 14 percent since September 20 when corporate tax rates were cut.
The broader markets, too, have done well. The BSE Midcap index gained 11 percent and the Smallcap index 5 percent after September 20.
Most experts say the rally in benchmark indices will continue in the new year, with intermittent correction as there has been a strong support on the downside.
"In 2019, the Nifty outperformed small and mid-cap indices by 15 percent. Historically, on a five-10 year basis, the small and mid-caps returned higher or similar to the Nifty. Excluding the top 15 gainers, the Nifty would have returned negative in 2019 and unless the current slowdown reverses, this performance is not repeatable in 2020," brokerage Maybank Kim Eng said.
A more broad-based participation of stocks and sector rotation would be the more likely trend in 2020, it said.
"Though our base case lacks upside, the government's bold actions in the budget February 2020 may bring positive catalysts such as a) fiscal expansion to carry out capex and b) cut in personal income tax/GST. These measures if executed well could bring out the animal spirits in the Indian economy and drive its GDP growth back to 6 percent or more," the global brokerage said.
The government's privatisation drive and an agreement to join a large trade block in 2020 may be perceived positively, it added.
Expecting a good year ahead, here is list of stocks upgraded by brokerage houses in the last one month:
Brokerage: Kotak Institutional Equities
HDFC | Target: Rs 2,600 | Return: 10 percent
Kotak upgraded the stock to buy from add and also raised target to Rs 2,600 from Rs 2,400, saying the scrip would be a key beneficiary of consolidation in the NBFC sector.
"The decline in funding costs improved its ability to compete with banks in retail business and HDFC is best placed to capture growth in developer loans whenever cycle turns," the brokerage said.
Brokerage: Morgan Stanley
Bharti Airtel | Target: Rs 530 | Return: 26 percent
Morgan Stanley upgraded the rating of the telecom service provider to overweight and also raised the target price to Rs 530 from Rs 410. It feels average revenue per user is likely to rise following the tariff hike.
It sees an improvement in profitability and balance sheet repair over the next few years. It will be a key beneficiary of the same along with Reliance Jio.
NTPC | Target: Rs 152 | Return: 32 percent
The brokerage house also upgraded rating on NTPC to overweight, with a target price of Rs 152 per share as fixed costs under-recovery have reduced.
The impact of regulations is known and the potential government stake sale remains an overhang on the stock, it said, adding the risk-reward is attractive as two of three concerns are either reversing or known.
Steady commissioning should drive earnings, it said.
DLF | Target: Rs 269 | Return: 17 percent
Morgan Stanley has upgraded the stock to overweight from equal-weight, with a new price target of Rs 269, citing reasonable valuation.
"DLF is now our top pick in the industry. The company has a balanced portfolio of development and yielding assets. Power to monetise its land bank is on the rise, led by neighbourhood development. However, it remains predominantly leveraged to the NCR region. Our updated model shows reasonable valuation, and we see comfort in asset-based valuation," the brokerage said.
Morgan Stanley has raised its March 2021 forward NAV estimate to Rs 359 per share from Rs 287 per share for in March 2019.
Brokerage: Bank of America Merrill Lynch
Maruti Suzuki | Target: Rs 8,650 | Return: 21 percent
BoAML upgraded its rating on the stock to buy from neutral and also increased price target to Rs 8,650 from Rs 7,450. Maruti is best placed for recovery in the passenger vehicle segment, it said.
"We expect earnings cycle to bottom in FY20 and see 26 percent EPS CAGR over FY20-22 period. We expect volume to grow 10 percent each in FY21 and FY22," the brokerage said.
Brokerage: Macquarie
Zee Entertainment Enterprises | Target: Rs 446 | Return: 60 percent
Macquarie upgraded Zee to outperform and also raised target to Rs 446 from Rs 268, saying the stake sale is a big step towards reducing the company’s debt.
"We expect focus to now shift back to fundamentals. With lower promoter stress now, investors will expect an improvement in balance sheet," it said.
Brokerage: Citi
Tata Steel | Target: Rs 550 | Return: 31 percent
JSW Steel | Target: Rs 315 | Return: 24 percent
The brokerage house upgraded Tata Steel, which is also its top pick in the sector, and JSW Steel to buy from sell.
"We are expecting global steel prices to rise on greater likelihood of China easing and potential demand upside in the Rest of World and India. Further volatility in margins should ease as China's supply additions would end in 2020, and we don't expect a sharp deceleration in China demand at least until the mid-decade," Citi said.
Hence, the research firm raised its target EV/EBITDA for Tata Steel and JSW Steel to 6.5x EV/EBITDA (from 6x), set at historical means and applied to the historical 10-year consensus estimates (two mini cycles).
"We raise target price-to-book value for SAIL from 0.3x to 0.5x on an improved outlook. FY21 EBITDA is raised 6-18 percent on higher spreads," it said.
Brokerage: CLSA
Glenmark Pharma | Target: Rs 410 | Return: 19 percent
CLSA upgraded its rating on Glenmark to buy from sell and raised the target price to Rs 410 from Rs 350 after the pharma company's Q2FY20 results beat estimates.
"All geographies witnessed YoY growth for the first time in over three years. US sales momentum is expected to remain strong. India business should continue growing above the industry rate. We increased FY20-22 EPS estimates by 3 percent and 22 percent," the brokerage said.
Brokerage: JM Financial
Techno Electric | Target: Rs 320 | Return: 17 percent
Techno Electric saw healthy traction in the first half of FY20 order inflows after a lull of nearly three years, thus improving its overall order book position to Rs 2,430 crore (up 40 percent YoY) and providing ample revenue visibility over the next 24 months, JM Financial said.
The brokerage expects the order inflow to sustain on awards in a) renewable energy corridor: 50GW of projects to be ordered out by FY20-end and commissioned by Dec’20, b) FGD systems: only 25 percent of basket has been awarded yet, while the rest will be ordered out with a delay ensuring consistent order flows over next 4 years, c) smart meters: replacement of 250 million conventional meters likely to open up a new revenue area for TEEC from FY21 and d) international orders: while the progress has been slow in large projects (Afghanistan and Kenya), TEEC has won a few from MENA/Africa.
The company has a much stronger balance sheet as its entire debt has been repaid, while net cash balance represents 20 percent of its market cap, said JM which upgraded the stock to buy with a revised TP of Rs 320.
Brokerage: Motilal Oswal
ABB | Target: Rs 1,660 | Return: 12 percent
Motilal Oswal remains positive on the digitalisation/automation opportunity over the medium term. The current slowdown in order inflow/revenue growth can be attributable to the economic slowdown, it said, adding given the short-cycle nature of such orders, inflows will bounce back sharply as the economy recovers.
With the new corporate tax rates in place, MNC engineering companies are well placed to benefit from increasing competitiveness of their Indian entities, it said. Over the past five years, exports have witnessed around 10 percent CAGR, supporting the overall growth.
A comparison of the segmental margins for the Indian entities versus their global parents suggests ample room for margin expansion, despite taking into account the royalty/technical fees, Motilal Oswal said.
The brokerage upgraded ABB to buy, with a target of Rs 1,660.
Brokerage: PhillipCapital
L&T Technology Services | Target: Rs 1,760 | Return: 16 percent
LTTS has reported strong performance in FY18-19, outperforming peers with 20 percent/25 percent YoY growth in the US revenues. While it started FY20 with a guidance of 14-16 percent, USD growth (and has reported 13 percent YoY growth in first half of FY20), persistent weakness in telecom/hi-tech (due to global trade concerns) has led to the management cutting its guidance twice–to 10-12 percent growth. All along, the deal flow and performance in other segments remained strong.
"We do not see any cascading effect of the expected weak performance of second half of FY20 and expect the company to revert to its strong growth path in FY21," said PhillipCapital.
Mindtree | Target: Rs 910 | Return: 20 percent
While the company may face a few headwinds for growth over the next two-three quarters because of the transition process, PhillipCapital believes the medium to long-term outlook remains bright, given the credentials of the new CEO and the L&T parentage.
"We introduce FY22 estimates and roll forward our valuation to FY22. We value MTCL at 16x FY22 PE. We upgraded to buy with a target of Rs 910 (Rs 700 earlier)," the brokerage said.
Cyient | Target: Rs 490 | Return: 26 percent
Cyient’s stock price has corrected around 35 percent over the last one year on its below-par performance in four of the last six quarters. All operating parameters – revenue, margins, profitability, geographies, verticals and top 5/10 clients have deteriorated over the last few quarters because of client/company-specific issues.
The stock now trades at 10x FY21 EPS, a significant discount to all its peers and also at its lowest multiple since the 2008 financial crisis, said the brokerage.
"While we had downgraded the stock following dismal performance in Q1, the sharp correction after Q2 results and our thesis of Cyient being a good acquisition target makes us turn positive again. We upgrade it to buy," it added.
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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