Mar 14, 2018 02:52 PM IST | Source:

Don’t expect fireworks in FY19; 3 stocks which can give multibagger returns in 2-3 years

Some stability in the global market, non-redemption in MF and availability of market at bargaining price can provide some support to the domestic market in the near-term.

Moneycontrol News @moneycontrolcom
  • bselive
  • nselive
Todays L/H

We continue to possess moderate expectations in equities for FY19. Given the high valuation, the risk of lower-than-expected growth, dearness to funds availability and pre-national election tantrums, said Vinod Nair, Head of Research at Geojit Financial Services in an interview with Moneycontrol's Kshitij Anand.

Q) A straight 10 percent kind of correction on Nifty from its record high of 11,171 gave plenty of fresh money to enter markets but at the same time fuelled nervousness among traders. Do you think the pain is likely to continue?

A) The main reasons for this correction are premium valuation and increase in the cost of funds in India and abroad. In the meantime introduction of long-term capital gain tax in India impacted the country's performance, which may continue in the short-term.

The pain in the market will release only as valuation becomes more attractive and trend of interest cost stabilise. In the near-term, RBI is providing some additional liquidity in the bonds market, which will provide some relief to the market and finance sector.

Also, Mutual Funds have a high amount of cash in hand. FIIs are in a selling mode, but MFs are increasing their exposure to equities on a MoM basis.

Some stability in the global market, non-redemption in MF and availability of market at bargaining price can provide some support to the domestic market in the near-term.

Q) FY18 belonged to the bulls but what is your outlook for FY19?

A) We continue to have a moderate expectation of equity for FY19. Given high valuation, the risk of lower-than-expected growth, dearness to funds availability and pre-national election tantrums.

This will lead to higher volatility in the next 2-3 quarters. On a one-year forward basis, Nifty is currently valued at a P/E of 18.0x.

In the last 10-years, we had a peak 19x with an average of 15. Valuation has the potential for further downgrade given the increase in global risk and inflation.

Q) Any particular sector(s) which is likely to hog the limelight in FY19?

A) During this consolidation phase, we have higher regards to sectors like IT, Pharma and export-oriented companies. Given the domestic emphasis on the rural sector, companies with the higher business mix to rural areas are likely to do better in the coming 1-2 years, FMCG, Agro and fertilizer sectors can do well in the same time.

Q) Any top five stocks which you think could turn multibaggers in the next 2-3 years time?

A) We suggest 3 stocks with multibagger abilities:

InterGlobe Aviation

InterGlobe Aviation Ltd (Indigo) is one of the most efficient low-cost carriers (LCC) with a market share of 40 percent in Indian aviation sector. Indigo passenger traffic grew by robust 31 percent CAGR versus industry growth of 15 percent CAGR, over FY14-FY17.

Going forward, expanding market presence through fleet addition and firming up its regional connectivity plans augurs well. Indigo’s fleet comprise of 15 percent more fuel efficient models which will cushion its margins and market share even at times of higher oil prices.

In the long term risk related to volatile oil prices is likely to come down. We remain constructive on Indigo gave RoE of 40 percent, efficient operations, and strong balance sheet.

Bharat Electronics

Bharat Electronics Ltd (BEL) is a Navaratna enterprise having 37 percent market share in Indian Defence Electronics. BEL’s core capabilities are in radar & weapons systems, defense communication & electronic warfare.

BEL has limited competition from other private players due to its niche capabilities and strong technological tie-ups. Further, strategic nature of projects, capital-intensive nature & high gestation periods acts as strong barriers to competition.

The current order backlog of Rs40,000cr is 5x FY17 sales, which has significantly improved the earnings outlook. BEL’s valuation has significantly re-rated due to strong order inflow and improvement in earnings profile.

Given its robust order book, GoI focus on indigenization and healthy order pipeline we continue to maintain a strong Buy rating for the stock.


NBCC Ltd (NBCC) is a Navaratna Enterprise engaged in Project management consultancy (PMC), Engineering Procurement & construction (EPC) and real estate business. Current order backlog of Rs80,000cr (12x FY17 sales) provides strong visibility for next 5yrs.

We expect execution to ramp up in coming quarters as Rs10,000cr worth redevelopment project started at ground level with an execution period of 2 years. NBCC is at sweet spot considering its huge order book, limited competition, and expertise in executing large projects.

Big projects like Pragati maintain (Rs2500cr), an Irrigation project in Maharashtra (Rs1,000cr), redevelopment of Nauroji Nagar (Rs2,500cr) started with an estimated execution period of 24months. Given strong earnings outlook and execution capability, we continue to maintain a Buy rating for the stock.

Q) FIIs seems to be bailing out from Indian markets, do you think the trend could continue at least for the year 2018?

A) The equity market has been impacted across the world at the start of the year with high volatility in emerging market.

Within which India is under-performing due to premium valuation, delay in earnings growth, union budget setback, NPA & fraud issue, reduction in India’s weightage and upcoming election apprehensions.

All these factors will take some time to stabilise, we are bound to be under volatility for some time. FIIs to convert their net inflows from negative to positive, the world market has to stabilize too.

Q) Do you think protectionism measures initiated by the Trump administration will impact Indian markets? If yes, which are the sectors that are likely to face the headwinds and why?

A) The imposition of tariffs by US will inevitably force major steel producing countries to divert part of their exports to major steel consuming centers like India.

This could distort the domestic market considerably, raising the threat of imports & oversupply of steel leading to a reduction in prices in India & World.

A 1 percent drop in steel prices will lead to more than the impact on EBITDA. Such impacts are subject to any contradictory decision taken by India Government.

Q) After this recent correction, do you think inflows into MFs which picked up the pace in 2017 could see some redemption?

A) Consolidation in the global market is already impacting the domestic market but we have not seen redemption pressure till February. But, the introduction of long-term capital gain tax and continuation in the global consolidation, increases the risk for redemption in the medium-term.

A large portion of redemption is usually led by fear during the last phase of the consolidation.

Q) Do you think there could be more skeletons which could come out of the closet in the banking sector especially after the Nirav Modi-PNB saga? It looks like woes for the banking sector is here to stay and if it spreads towards private banking space, it could be disastrous. Do you agree?

A) Well, this is a very notional thought, but yes if it spread to private banks it will certainly impact. There is no such history to highlight in the case of the private sector, whereas the probability is very dim. As we know the operational process & risk mitigation is very strong in private banks.
Follow us on
Available On