Children's Day special! These 9 stocks could give bumper returns in the next 10 years
On this Children's Day, which India celebrates every year on November 14, the birth anniversary of former Prime Minister, we collated a list of six stocks which can give double-digit returns in the long term
The market has continued to consolidate after hitting an all-time high on the Sensex last week and is yet to see any major corrections. Consistent FII buying, government measures, favourable global cues and positive growth guidance from India Inc has provided support.
The current rally which spurred after the corporate tax cut on September 20 pushed benchmark indices 11 percent higher near their record highs.
History suggests that in the longer-term, the market always gives strong returns. The market has had a solid run in the last 10 years and despite the change in governments, policies, the BSE Sensex surged 138 percent, higher than, the Midcap index (up 128 percent) and Smallcap index (80 percent).
The Sensex was at around 21,000 levels in January 2008, at that time experts were forecasting the index could go around 40,000 soon, but the market started collapsing due to sub-prime crisis in the US. 11 years later the index has finally achieved 40,000 levels, which indicates that long-term investment in quality stocks can more often than not bring hefty returns.
Experts opined that India's growth potential remains strong in the medium-to-long term and consistent government measures have further strengthened their belief.
"In spite of near term worries, the Indian economy structurally has immense potential of growth and for an investor, equity is the best class to capitalise on this opportunity. We expect 10-12 percent CAGR in the long run from Indian equities," Vineeta Sharma, Head of Research at Narnolia Financial Advisors told Moneycontrol.
Himanshu Gupta of Globe Capital Markets said, "Of course there will be global headwinds and volatile times from time to time but we firmly believe that domestic long term fundamentals are strong and supportive policy action is likely to support the markets."
"We are the fastest growing nation sailing on a secular bull run so any dips in markets will offer opportunities to get great businesses at attractive levels," he added.
Investing in stock at the right time and the right price always gives solid returns in the long term. Similarly if one invests in stock at the beginning of listing with seeing the potential that gives hefty or bumper returns in long term, but that does not mean if you invest now in those stocks will not give returns.
It is like 'As you sow, so shall you reap' and if we do the same with a child that is always better for himself/herself in the longer term.
Hence on this occasion of Children's Day, which India celebrates every year on November 14, the birth anniversary of former Prime Minister Jawahar Lal Nehru, whom we fondly called Chacha Nehru, we collated nine stocks which can be considered for long-term investment, though in next 12-18 months, these stocks could give double-digit return.
Vineeta Sharma, Head of Research at Narnolia Financial Advisors
The life insurance industry is quite under-penetrated, at the same time there is value migration happening away from legacy players like LIC. SBI Life is best placed in this segment. The company is gearing towards favourable product mix and the edge of SBILFE is its low-cost distribution channel.
AUM is growing at 20-21 percent and is currently around Rs 1,40,000 crore. The stock may be accumulated from a long term perspective. The company is expected to yield a 15 percent CAGR for the next 10 years. Our 18-month target for the company is Rs 1,150.
The proportion of the organised retail sector in India is a mere 5 percent versus 85 percent in the USA. Considering low retail penetration in India, we expect healthy revenue growth to continue going forward. The company has almost doubled its revenues every 2 years and more than doubled its net profits in 2 years period.
Avenue Supermarts is the most efficiently managed retail company in India. The company works on lower margins as a result of conscious effort to maintain or bring down prices for consumers across categories. The company has the best supply chain management and the best sourcing of materials in terms of pricing as well as quality. The company consciously goes slowly in stores addition both to keep its balance sheet healthy and keeping its operational team’s bandwidth focused on the already opened store. Our 18-month target for D-Mart is Rs 2,500 though we expect the company to yield CAGR of 18-20 percent for the next 10 years.
AMC space is what we assume a consistent compounder space and in this the track record of HDFC AMC is amazing. In India, the total deposits in banks is Rs 117 lakh crore in March 2018 and the total MF AUM is around Rs 25 lakh crore; i.e out of savings, 10-15 percent of savings are into mutual funds compared to 50 percent globally in developed nations.
Keeping this in mind, we are confident that the mutual fund pie of investments will increase at a higher rate than FDs in the savings portfolio of an investor. AUM for HDFC AMC has doubled in the last 3 years. The company’s market share is around 15 percent. Strong parentage along with high market share and a strong distribution network of more than 65,000 partners is the key strength of the company. The profit and loss statement has huge operating leverage. Our 18 months target return for HDFC AMC is Rs 4,000 though we expect the company share price to yield at least 18-20 percent CAGR for the next 10 years.
Subros is the largest manufacturer of auto air conditioning systems in India. Its growth prospect is highly dependent on passenger vehicle (PV) industry as it gets around 90 percent of its revenue from this segment. We remain constructive on long term growth prospects of PV industry, led by increase in agriculture income through minimum support prices (MSP), increase in finance penetration, lower interest rates and economic recovery.
We believe that it would continue to outperform the industry driven by a) faster shift towards petrol vehicles post-BS-VI implementation, b) market share gains by its key customer Maruti, c) rising share of the business (SOB) from OEMs. In order to reduce dependency, the company has ventured into other untapped areas like CV segment, railway AC/Metros, Transport Refrigerator (Reefer) and Home AC segment which have opened up larger opportunities. We recommend a buy with a target price of Rs 321.
IFB Industries (IFB) is the leader in front load washing machines (WMs) with a market share of around 40 percent in India. India's consumer electronics industry is set to grow rapidly on account of increasing disposable income, rapid urbanization, lifestyle changes and easy financing. We believe IFB' strong brand equity, premium products commanding higher realization (front load WMs), distribution expansion and differentiated marketing strategy (IFB points) makes it one of the prime beneficiaries of the consumption wave. We recommend a buy with a target price of Rs 928.
VIP Industries (VIP) is the market leader in India’s organized luggage industries with a market share of 55 percent. India's organised luggage industry is estimated to grow at a healthy pace going forward, led by rising disposable income, increasing women workforce, growing interest of people in tourism and rising preference for branded products.
India's air passenger traffic is estimated to recover, which augurs well for the organized luggage industry. With market leadership, strong brand equity, wide distribution reach and constant focus on innovation, VIP would be a major beneficiary of the macro-economic revival opportunity in the coming years. Notwithstanding the near term slowdown, we expect healthy recovery and therefore recommend a Buy on the stock with a target price of Rs 534.
State Bank of India is the country's largest commercial bank in terms of profits, assets, deposits, branches and employees. Its subsidiaries include SBI Life Insurance, SBI Mutual Fund, SBI Card and SBI General Insurance.
Going forward, we are expecting asset quality improvement and write-back of provisions. At the current market price of Rs 306, the stock is trading at the forward P/BV of 0.8x FY2021E. The stock is expected to be multi-bagger and is likely to reward shareholders in the long term.
Tata Investment Corporation is a non-banking financial company (NBFC) registered with the Reserve Bank of India under the category of Investment Company. It is a subsidiary of Tata Sons Private Limited. The company’s activities primarily comprise of investing in listed and unlisted equity shares, debt instruments of companies in a wide range of industries and in mutual funds.
At the CMP of Rs 820, the stock is trading at TTM P/BV of 0.48 times with TTM book value of Rs 1,699.37 which lower than the 10 years a historical average of 1.26x. we see tremendous value unfolding for the investors in the long term and therefore recommend a buy on the stock for the long term.
Larsen & Toubro is one of the largest and most respected companies in India's private sector. With over 75 years of a strong, customer-focused approach and a continuous quest for world-class quality, L&T has unmatched capabilities across Technology, Engineering, Construction and Manufacturing, and maintains a leadership in all its major lines of business.
The company has posted largely in-line earnings for the September quarter. It registered a 6.83 percent year-on-year (YoY) profit growth at Rs 2,770.43 crore. Its consolidated revenue increased 15.16 percent YoY to Rs 35,328.45 crore, which also included Mindtree’s Rs 1,914 crore revenue for the quarter. The company added new orders worth Rs 48,292 crore at the group level during the quarter ended September 30, 2019, registering 20 percent year-on-year growth. Thanks to the strong inflow, L&T’s order book swelled to over Rs 3 lakh crore with international orders constituting 22 percent of the total book.
With the consolidated order book of Rs 3 lakh crores about 2.2 times its FY19 sales. Assuming the growth trajectory remains good, at its current forward valuation of 17.5 times its FY20 estimated earnings, the stock is reasonably valued. Hence, we recommend a ‘buy’ rating for the medium to long term perspective.
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