Representative Image (REUTERS/Amit Dave)
The Indian government extended the lockdown till May 3. This was expected but, at the same time, the economic cost - which the economy, as well as India Inc., has to pay will be huge.
The government has also decided to lift some curbs and revised guidelines for the extended coronavirus lockdown. The guidelines issued by the MHA will come into effect from April 20, 2020, and it states that there are select additional activities that would be allowed to function.
According to a CARE Rating report, agriculture and manufacturing of essential goods will benefit the most from the revised guidelines.
“This has to be looked at in line with opening up of APMC markets, free movement of essential goods, ration shops to remain open and no restriction on opening up of the establishments for manufacturing the essential goods,” it said.
Indian banks and business will bear a fair share of the economic costs, and the impact of it will be seen in the forthcoming quarters on the books of India Inc.
The management commentary during the March quarter will be an important trigger for the movement of stocks in the near term.
“The economic costs of the lockdown will be large and progressively play through. We argue that you can bucket the costs over the immediate term– in economic loss terms ~3-5 percent of GDP (INR6-10tn), in government’s fiscal deficit ~4-5 percent (or INR8-10tn), for businesses lost earnings of 15-20 percent (an early estimate) & balance-sheet expansion and from consumers’ perspective in lost incomes,” Edelweiss Securities said in a report.
“They are not mutually exclusive. Ultimately, the equity market should capture it all. For now, that’s about down 25 percent in USD terms. India is not unique, but as the equity market also indicates, it could well be a little more vulnerable,” said the report.
The expectation for Q4FY20 results is expected to be a mixed bag with few sectors impacted by the COVID-19 due to external & internal factors in Jan to March while many with minor impact. The larger impact and the subsequent 21-day lockdown is expected to be higher in Q1FY21, suggest experts.
"The result of Q4FY20 is not going to impact the market since much is factored, rather the market will try to understand how long will be the period of lockdown, its implication to varied business and within which who will evolve as a winner due to change in public preferences & investment strategy," Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
"The beneficiary businesses will be staples, agriculture, FMCGs, Healthcare, Pharma, Chemicals, E-Commerce while underdog will be Hospitality, Restaurants, Travelling & Transportations, Oil & Gas, Metals and neutral could be banks and services," he said.We have collated a list of top 8 stocks across different brokerage houses which are likely to weather the lockdown storm with ease:
Expert: Aamar Deo Singh, Head Advisory, Angel Broking Ltd
Asian Paints (APL):
APL has a strong brand recall and one of the largest distribution networks (60,000+ dealers). APL’s margins are expected to improve on the back of falling crude prices (more than ~40 percent within three months). APL has a strong balance sheet along with free cash flow and higher profitability.
IPCA’s 54% of revenue comes from domestic generic and API business. Generics and API continue to provide revenue growth for Ipca. The company is expected to outperform the Indian Pharmaceutical market (IPM) by 8-10 percent p.a in FY22.Bata India:
The Indian footwear industry is valued at Rs.50,000-55,000 crores, which is expected to grow at a CAGR of 15 percent going ahead. Two third of the industry is mainly dominated by the unorganized sector which suggests a huge untapped opportunity. The stock has corrected significantly from the peak, providing a good buying opportunity
Brokerage Firm: Emkay Global
Bharti is on a strong footing with improving operating performance in both India and Africa. The recent equity fund raise, tariff hike and ability to gain market share place the company in a relatively better position compared with peers.
The brokerage firm is hopeful of another round of tariff hike later in FY21E as well as the Supreme Court’s approval regarding the deferred pay-out option for AGR suggested by the government. It expects an EBITDA CAGR of 22 percent over FY20-22E.
Britannia has strong brand equity and leadership position in the premium biscuits segment. It has a solid innovation and execution track record as well.
Besides a steady innovation pipeline, distribution expansion and market share gains in biscuits, the company’s step-up in new launches across adjacent categories are likely to improve its growth momentum.
Input inflation seems manageable, and cost savings, portfolio premiumization and efficiencies from new plants are likely to improve margins and earnings momentum in the future.
HUL offers relative safety and good growth visibility with the business being less impacted and is likely to see a faster recovery post normalcy.
The management exhibits better ability to handle disruption with strong execution and distribution network which can help in further strengthening its leadership.
Accelerated cost savings, synergies from GSK acquisition and benefits of lower crude prices are likely to provide margin gains and still offer healthy earnings growth outlook, despite the near-term disruption.
Although APE growth may come to a halt as insurance is a hand-held business, we believe that the current turmoil will raise awareness regarding the critical importance of protection.
SBI Life is best-placed on account of its strong distribution and expanding persistency to benefit from this shift.
Divi's Laboratories Ltd:
Strongly placed to tide over business downturns given a robust balance sheet and consistent FCF generation.
One of the key beneficiaries of increased outsourcing given a proven execution record, and a strong relationship with clients.
As more clients look to reduce their dependence on China and move to other cheaper destinations like India, Divi’s will continue to benefit.
Strong earnings visibility with the recent capex of Rs17bn (highest ever, 60 percent of the current gross block).Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.