We also like FMCG, agriculture, consumer staples & durables, writes Vinod Nair of Geojit Financial Services
The month of December, has been very volatile, in fact, a roller-coaster ride for investors. The Nifty50 touched the monthly high of near 11,000 two times and is now moving back to the monthly low of 10,334, playing within a wide range of 6 percent.
This month has been very substantial in-terms of key news and data in the both, domestic and the global market. The domestic events such as state elections results, RBI chaos, tumbling oil prices, lower consumer inflation, narrowing trade deficit and good IIP numbers led to volatility.
The market first corrected by 5 to 6 percent in anticipation of a subdued state election result and then reversed completely accepting the in-line result. Recent developments on D-Street such as farm loan waiver and cut in GST rates are having a negative impact on the market.
Though both will have a positive effect on the economy through higher consumption. This populist measures may exert pressure on India’s fiscal and quality of decisions in the near-term.
This risk is increasing given the fact that the Indian economy has slowed down and will get slower in the next 6 months. The revenue from GST has been below par, a further cut in GST rate will have a modest impact on the fiscal slippage but with the populist measures, it can ruin the fiscal further.
A safe space in equity investment during such times is consumptions & IT. We also like FMCG, agriculture, consumer staples & durables.
They have created a good return in the long-term whereas the current headwinds are premium valuation. But, such high valuation will continue as uncertainty increases and disposable income improves given stable outlook.
Here is a list of 3 stocks to buy for the year 2019:
Exide Industries Ltd: Buy
Exide Industries Limited (EIL) is a leader in storage battery business with a market share of 60 percent in India. Its segment includes automotive and industrial lead-acid batteries.
Revenue for the Q2FY19 grew by 15.3 percent on a YoY basis led by healthy volume growth across segments in automobile, inverter and industrial batteries.
EBITDA margin slips by 30 bps due to higher fuel cost and rupee depreciation. Higher lead price and rupee depreciation remain a concern for Exide Industries in the near-term.
However, we remain positive on the long-term outlook of Exide owing to higher acceptance of battery engineering and expect the revenue and the net profit to grow by 15%/16% CAGR over FY18-20E
PNC Infratech Ltd: Buy
PNC Infratech Ltd (PNC) is an infrastructure construction, development and management company. It has expertise in the execution of projects including highways, bridges, flyovers, airport runways, industrial areas, and transmission lines.
PNC’s Q2FY19 revenue grew by 108 percent on a YoY basis led by strong execution of big-ticket orders. EBITDA margin slips 143bps YoY to 13.4 percent due to higher RM cost and other expenses.
Order book remains robust at Rs 10,632 crore which is 5x TTM revenue and provides improved visibility. Most of the projects are now in execution stage with 85 percent land availability, hence we expect revenue to grow at a CAGR of 39 percent over FY18-20E.
PI Industries Ltd: Buy
PI Industries manufactures plant protection & speciality plant nutrient products and solutions under its agri-inputs business.
PI Industries Ltd Q2FY19, sales rose by 29 percent on a YoY basis primarily due to strong domestic and exports sales. EBITDA margin declined by ~317 bps YoY to 18.6 percent due to higher cost and currency fluctuation.
We expect EBITDA margin to recover to 21.8 percent in FY20E supported by improving product mix, niche launches and strong earnings visibility from CSM business.
We expect the net profit to grow by 19 percent CAGR over FY18-20E owing to continued traction in the commercialization of molecules, scale-up of exports, healthy R&D pipeline, commissioning of new plants and robust order book position Hence, we continue to maintain our positive stance on the stock.
(The author is Head of Research at Geojit Financial Services)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.