History suggests that the market always creates great opportunity once in every decade, whether it was 2000's IT boom, 2008's global financial crisis or the latest novel coronavirus or COVID-19-led crash.
In IT boom, the Nifty50 fell around 48 percent in more than one-and-half-year (from 1,732 to 898 levels), while the correction of more than a year in the global financial crisis was 58 percent from the peak (6,287 to 2,617 levels). In the COVID-19-led sell-off, the index corrected around 38 percent from its peak (12,430 levels) if we take the lowest level seen on March 23 and currently the fall was 33 percent (from record high seen in January till April 3, 2020).
"It is a Déjà vu (a feeling of having already experienced the present situation) all over again as markets have a tendency, once in a decade, of creating declines of high magnitude and velocity in a very short span of time. This always leaves the investors in an iffy kind of a situation as to whether the world is coming to an end," ICICI Direct said.
But in the following years, especially once the dust settles down, every recovery has given hefty returns provided one should pick the right time and right opportunities. Just to explain the reality of multibagger - the Nifty50 has taken nearly four years to rally around 4,900 points but it lost those same gains in just over 2 months due to COVID-19 that has taken nearly 65,000 lives with around 12 lakh infected cases worldwide.
In fact, the virus deliberately forced the major parts of the world to go for lockdown and as a result, raised fears of recession as well as depression which worried investors the most.
In large-mid-to-smallcaps, 80-90 percent stocks corrected sharply with the majority falling in the range of 30-90 percent during the phase of turmoil.
Hence, every expert on the Street advised buying quality stocks in a gradual manner instead of bulk purchases and waiting for the market bottom which no one has found yet in history.
"We believe that as more time passes, COVID curve will flatten across the countries as it has in China and South Korea. Even Italy has started to show some indications of flattening of the COVID curve. Moreover, the chances for finding a cure will keep rising. Thus the current challenges also present with one of the biggest opportunity to accumulate assets at reasonable valuations," Axis Securities said.
Moneycontrol has collated a list of 18 stocks which have strong fundamentals and can deliver solid returns in the longer term.
Brokerage: Axis Securities
Titan Company: It has consistent growth and valuations have become attractive. Demand scenario will revive sooner than later.
United Breweries: It is one of the best consumption themes with solid long-term growth potential. The stock correction provides a good entry point.
Eicher Motors: It has solid premiumisation potential and has been a consistent value creator.
Kotak Mahindra Bank: It is one of the best franchises with consistent returns and the current valuations are reaching the stressed zone.
Bajaj Finance: The stock could correct further but the current scenarios present a good opportunity to accumulate the quality franchise.
ICICI Bank: The stock has seen deep correction but will be solid when the market bounces back. The stock will quickly erase the losses as it has a strong retail book.
Bharti Airtel: The business impact on account of COVID-19 will be limited. It is a good stock for capital protection and long-term growth.
Maruti Suzuki India: Low fuel prices and lower interest rates which all will work well for Maruti. The stock will see a solid bounce-back as the market revives.
Brokerage: ICICI Direct
Hero MotoCorp: It is an industry leader in the domestic 2-W segment with a market share of around 35 percent with its core motorcycle segment market share at around 50 percent. However, the company is likely to witness near-term headwinds in terms of a rebound in volumes amidst COVID-19 outbreak and more than anticipated price increase on account of BS-VI transition (more than 10 percent).
From a broader perspective, however, it possesses capital-efficient business model realising more than 25 percent return on capital employed (RoCE) on a consistent basis and offers an attractive dividend yield of around 5 percent.
Heidelberg Cement: It is one of the few companies in the cement space, which despite having a regional presence, possesses a strong balance sheet and retail presence. HCIL, like most other cement companies, would be facing volume disruption in the near term. However, they would be able to withstand the same comfortably owing to cost leadership, strong promoter backup and low D/E of 0.3x. Post the sharp correction in the stock price, HCIL is now available at attractive valuations.
Wipro: In the near term, the company may face revenue pressure due to exposure to affected verticals like energy vertical, lockdown, pricing pressure and a slowdown in discretionary spend. However, post H2FY22, we expect IT spending to improve and grow at a healthy pace in FY22.
In addition, digital acceleration, gains in market share led by automation and pick-up in execution could drive large deal wins. The recent correction in the stock price factors in most of the near term negatives and is trading at an attractive valuation.
Tech Mahindra: In H1FY21, the company may face revenue and margin pressure led by COVID-19 lockdown, pricing pressure, delay in deal ramp-ups and slowdown in discretionary spend. However, we expect IT service spending to improve post H2FY21 and a revival in FY22. Further, the company's leadership in telecom vertical will make it a key beneficiary of vendor consolidation in the segment and 5G opportunities. Enterprise business segment will also benefit from improved competencies, sharper market positioning and success in large deals.
Bharat Electronics: COVID-19 will have an impact as some projects may get delayed but the anticipated medical devices order from government amid COVID-19 outbreak and likely operational relaxation by respective state governments to aerospace and defence firms from India Lockdown may lead to some cushion in FY21.
Overall, strong order book of Rs 51,300 crore (which is 4x book to bill ratio) continues to provide strong revenue visibility. BEL currently exhibits attractive valuations, has always paid consistent dividends, commands a debt-free balance sheet and generates strong cash flow from operations (CFO) yield.
KSB: Historically, the company maintained DPS to tune of Rs 5-6/share, which provides a dividend yield of 1.5 percent. Further, the company is making FCF/share to the tune of Rs 12-15 proving FCF yield of around 3-3.5 percent. Moreover, the company has been generating other income to the tune of Rs 40 crore on cash of Rs 207 crore.
Based on CY22 estimates, the earnings yield of the company is well over the 10-year G Sec yields. Historically, a positive spread of equity over bond yield provides a better investment opportunity. Hence, we expect downside in KSB from present levels to be limited.
Gujarat Pipavav: Gujarat Pipavav was expected to see major disruptions during March and April, as most of the services on the GPPL port are meant for the Far East (China in particular), which saw disruption due to the annual Chinese new year and then the COVID-19 crisis.
However, faster than expected ramp-up in the Chinese container ports (workers allowed to return to the port, factories restarting), would lead to clear the backlog of cargoes and de-bottlenecking of the global EXIM cargo movement (re-positioning of containers stranded at the Chinese ports).
The increased container movement between the Far East and India would lead to a higher capacity utilisation for GPPL (with a favourable product mix of EXIM cargo compared to coastal cargo movement).
Kewal Kiran Clothing: Though the near term revenue growth would be impacted owing to the impact of COVID-19 (closure of stores due to national lockdown), however over the longer term the management is looking to achieve double-digit revenue growth and has alluded at a possibility of dilution in margin profile to a range of 18-19 percent.
Despite the same, KKCL remains one of the most profitable branded apparel players having a robust balance sheet with cash & investments worth around Rs 270 crore. We expect the working capital days to inch up in the near term owing to liquidity stress faced by the Multi Brand Outlets (MBO) channel.
However, with the company having robust cash & investments, we do not foresee a significant increase in working capital debt. The debt/equity ratio is comfortably placed at 0.2x.
Mahanagar Gas: Although the company's sales volumes are expected to decline in the range of around 30 percent in the near term due to lockdown amid COVID-19 outbreak, we expect the steady volume growth once normalcy is restored.
Going ahead, we estimate total volume at 3.4 mmscmd for FY22 with volume growth at 7.3 percent CAGR for the next two years. Low gas prices and strong pricing power will help MGL to report healthy margins of Rs 14.6/scm in FY22. On account of attractive valuations, strong return ratios and favourable government policies, we expect MGL to be a beneficiary of India's growing CGD sector.
TV Today: TV Today has maintained its leadership in the Hindi news segment with Aaj Tak and India Today has seen an increase in market share, over the past five quarters. The monetisation across digital platform continued to remain robust as the digital segment has continued to display strong growth. We believe news heavy events will help the company to maintain growth momentum in broadcasting revenues in the medium term. Another attractive feature is the dividend yield. With no major capex, we expect the company to continue paying high dividends (already paid Rs 20 per share in FY20).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.