These stocks may take off once the runway is clear, says the brokerage.
They say every adversity brings with it an opportunity and the equity market is no exception.
While uncertainty and gloom prevail in the market due to the coronavirus outbreak, brokerage firm ICICI Direct has identified stocks that have the ability to withstand a storm and may take off once the runway is clear.
"As the wisdom goes in the market, there are always opportunities in every adversity which exhibit bull moves even in a rough environment. We believe in the current uncertain scenario when many stocks are at multi-year lows and finding opportunities are challenging, identifying such resilient stocks and riding them in a rough environment like this will be rewarding and exciting," said the brokerage.
Structural turnarounds, relative strength rankings and Dow Theory bullish signals are three broad technical concepts to find the outperformers during the market decline in 2020.
As per the brokerage, under the structural turnarounds, there are stocks that have witnessed faster retracement of the entire January – March 2020 decline quicker, in April 2020, thereby, signalling a change of guard and a robust price structure.
On the other hand, the stocks that showed relative strength are ones that have remained resilient during the sharp decline of February and March 2020 and relatively outperformed the benchmarks, acting as defensive bets for investors. These stocks have steadied the portfolio performance in turbulent times, the brokerage said.
Stocks with Dow Theory bullish signals are the ones exhibiting a combination of higher high-low on yearly time frame (long-term degree) and supported by a similar signal on monthlies (medium-term degree).
"As the basic tenet of Dow Theory goes, the trend is a friend and therefore, staying invested with these companies may be rewarding," said the brokerage.
Here are the seven such stocks that the brokerage has termed as resilient:
Have a look:
In the near term, the slowdown in the economy could impact hiring activity (Naukri business) and real estate business (99 acres), leading to a deceleration in growth in the business, the brokerage said.
However, the should company to return to strong growth in the medium term, led by its leadership position in each of the above verticals.
Despite the slowdown, the brokerage expects the company to have a CAGR growth of 17.4 percent and 19.5 percent in revenues and profitability over FY19-22E.
On the technical front, the stock has been one of the major outperformers in the technology space and has seen a sharp recovery in the last three-four weeks from the decade-long rising demand line joining the major lows of CY09 (Rs 94) CY13 (Rs 276) and CY17 (Rs 796) placed around Rs 1,600 levels, said the brokerage.
Empirically, the stock went back to its life-time high after testing the key trend line. The brokerage expects the stock to follow the same rhythm and resolve higher, thus offering aa fresh entry opportunity to accumulate.
The monthly MACD is seen conversing with its nine periods average, supporting a bullish stance.
Coromandel International is India’s second-largest phosphatic fertilizer player. It manufactures a wide range of fertilizers and markets around 4.5 million tonnes.
"Coromandel is poised to benefit from the recent increase in SSP prices, since the company has been selling SSP of around 5.6-6 lakh tonnes every year. Further, a recent increase in the prices of DAP can also assist the company to benefit from the higher realisation of NPKs," said the brokerage.
With an increase in the fertiliser industry volumes ahead of the Kharif season along with higher realisations and better EBITDA/tonne after a fall in the rock phosphate and sulphur prices, Coromandel International should post decent performance, it said.
On the technical front, the stock has relatively outperformed the mid-cap index and held its key support despite a volatile market around Rs 450 marked by a breakout area of long-term contracting triangle, thereby confirming a change of polarity and a 61.8 percent retracement of the last major upmove (Rs 337-642) at Rs 453, thereby offering fresh entry opportunity with a favourable risk-reward, said the brokerage.
On the oscillator front, the weekly stochastic is marching upward after recording a bullish crossover, indicating the continuance of a positive bias.
The brokerage expects the stock to challenge its lifetime high at Rs 642 and head to Rs 688 in the coming months, as it is 123.6 percent retracement of the last two months' decline (Rs 642–443), at Rs 688.
Over the years, Relaxo has consistently posted strong performance, showing the company's fundamental strength ."While volumes have trebled over the last decade (10-year CAGR: 10 percent), the transformation from being a basic slipper company to a conglomerate of higher value-added product categories has led the average
realisation to double to Rs 125 per piece (10-year CAGR: 7 percent)," said the brokerage."Relaxo has a capital-efficient business model, generating healthy asset turns of 3 times and EBITDA margins of 15 percent. Stringent control in NWC (60 days) has led to average CFO/EBITDA at 55 percent.
Subsequently, D/E ratio fell from 1 time in FY13 to 0.1 times in FY19, with RoCE of more than 20 percent. We expect Relaxo to be the beneficiary of market share gains through a shift from unorganised to organised players."
On the technical front, the stock has seen a change of polarity, as the previous major trendline resistance joining highs of CY15 (Rs 318) and CY18 (Rs 453) has reversed its role and is acting as support currently placed at Rs 500 levels.
As per the brokerage, the current decline from the all-time high (Rs 830 - Rs 500) achieved equality in magnitude with the 2015-2016 decline (Rs 318-188) and rebounded from key support at around Rs 500.
The brokerage expects the stock to maintain a positive bias and head to Rs 765, as it is 80 percent retracement of the entire decline (Rs 830–500).
respectively)," said the brokerage."While the company is likely to face near-term challenge due to lockdown, the long-term prospect of the company remained strong given the strong push of the government in the construction and infrastructure
The company should record revenue, earnings CAGR of 18 percent and 17 percent in FY20E-22E, supported by about 15 percent volume growth in the piping segment, it said.
On the technical front, the stock has been in a secular uptrend and has been trading in a rising channel since CY17, highlighting a sustained demand at elevated levels.
"It has recently rebounded taking support at the lower band of the rising channel which also confluence with the 80 percent retracement of the previous rally (Rs 678-1,267) placed at Rs 790 levels thus provides fresh entry opportunity with a favourable risk-reward setup," said the brokerage.
The monthly 14 periods RSI is seen rebounding, taking support at its previous major yearly lows, thus supports the positive bias.
The brokerage expects the stock to form a base around the lower band of the channel and resume up move towards Rs 1,160, as it is 80 percent retracement of the entire decline (Rs 1,265-746).
While the sales volumes are being affected, rural and semi-urban areas have shown resilience.
On the pricing front, the management does not foresee a significant pressure on cement prices in the near term.
With most of the costs being variable in nature and with crude and petcoke prices seeing a significant correction, the company could see an improvement in profitability, which could partially offset lost EBITDA on account of lower volumes, ICICI Direct said."The debt of Rs 2,900 crore in its book which would increase further by upto Rs 500 crore to fund the capex and working capital requirement. However, we do not see this increase in debt to pose a threat to the
company’s balance sheet strength, as its D/E would remain well below 0.5 times," said the brokerage.
On the technical front, the stock has held its key upward sloping trendline, around Rs 460, despite elevated volatility and remains an outperformer within the cement space.
A higher base formation near key support of Rs 500-520 signals a positive bias and offers a fresh entry opportunity with a favourable risk-reward for investors to accumulate the stock.
"Structurally, over the past 24 months, the stock has retraced 80 percent of preceding 26 months rally (Rs 360–879), at Rs 460. A slower pace of retracement signals robust price structure," said the brokerage.
ICICI Direct expects the stock to resolve higher and head to Rs 665 levels, as it is the 50 percent retracement of the entire decline (Rs 884-455).
From being an anti-AIDS API supplier, the company is rigorously diversifying its product basket by moving into some niche APIs and formulations."Heavy balance sheet and subdued return ratios are attributable to aggressive capex in the past few years. However, with strong clientele, good execution track record, diverse product offering and relatively better
compliance track record, things should look promising," said the brokerage.
As per the brokerage, the company, being the largest supplier of some of the key anti-AIDS and other APIs in the world, can also benefit from the quest for a drug for COVID-19, the respiratory illness caused by the coronavirus.
This would also likely generate better operating leverage on the back of better capacity utilisation, ICICI Direct said.
On the technical front, during the current month, the stock witnessed a faster retracement, as over the last four weeks stock entirely retraced preceding eight weeks decline (Rs 460 –295), indicating a robust price structure, in turn, suggesting structural turnaround, auguring well for next leg of the up move.
Structurally, the stock recorded a sharp rebound from the major long-term falling trend line placed around Rs 300, underpinned by positive divergence on the MACD indicator, as the price was forming lower low. Meanwhile, MACD was forming a higher low, indicating an impending positive momentum.
The brokerage expects the stock to form a higher base after the recent sharp upmove and pave the way to Rs 620, as it is near the life high of Rs 640 seen in July 2017.
The stock has formed a higher base after arresting intermediate correction near the key value area of Rs 3,000.
Structurally, the stock witnessed a faster retracement by recouping 19 months decline (Rs 4,494– 1,560) in just six months, indicating a structural turnaround.
Thereby, subsequent retracement offers fresh entry opportunities from a long-term perspective.
The brokerage expects the stock to resolve above the life high of Rs 4,895 and head to Rs 5,840, as it is 150 percent external retracement of the last two months' correction(Rs 4,895–2,990), at Rs 5,847.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.