Vineeta Sharma of Narnolia Financial Advisors said the sharp fall in valuation was an opportunity for prudent long term equity investors.
There has been a real carnage on the Street in the last one-and-half-month as sentiment was hurt due to the outbreak of coronavirus and fears of resultant economic damage.
The rise of cases in developed nations - United States and Europe - worried investors the most. FIIs started pulling out money from emerging markets like India. As a result, we saw the biggest monthly outflow in March (Rs 65,816 crore)
Sensex and Nifty plunged over 33 percent from their record highs seen in January. Many stocks hit their respective multi-year lows.
Some experts argue market valuations are attractive now, but the recovery might not be immediate given the lockdown in India and major parts of the world.
"As far as value buying is concerned, the market itself is in the value zone. Most of the fundamentally strong stocks are available at almost five-year low valuations," Sundar Sanmukhani, Head of Fundamental Research Desk at Choice Broking told Moneycontrol.
"Our recommendation to the investors is to stick to quality fundamental stocks, which have minimal impact from the lockdown and can rapidly revive post that," he said. He is cautious on the equity market performance in the near term.
Vineeta Sharma, Head of Research at Narnolia Financial Advisors also said the sharp fall in valuation was an opportunity for prudent long term equity investors. "Idea is to identify businesses where long-term competitive moat exit, the balance sheet is strong to tide short term pain and there is a secular business growth potential for the future."
Here is the list of 10 stocks which experts feel are safe quality bets in the current market turmoil:
Expert: A K Prabhakar, Head - Research at IDBI Capital
It is one of the largest private bank with 5,275 branches network and loan book of Rs 6,35,654 crore. It trades at attractive valuations and trades less than 1-time adjusted book. It holds many subsidiary companies which can create additional value.
Avenue Supermarts (D-Mart)
Company is growing at 25 percent in the last few years and we think company is pulling consumer away from unorganised stores due to high discounting and now delivery to home on minimum charge would help the company grow in next few years around those levels.
Life insurance as business is growing 15 percent CAGR in last 17 years in private sector and for next 10 years similar growth looks possible. Company grows faster than peers and has better margin and this correction gives better entry point.
Now duopoly in telecom between Jio and Airtel would give pricing power to both these companies.
Gold NBFC is safest in this crisis situation with NIM around 15 percent and loan book of around Rs 38,000 crore. It has one of lowest NPAs for high margin business.
Expert: Vineeta Sharma, Head of Research, Narnolia Financial Advisors
Over the last ten years, PSU banks have lost market share to more nimble and better managed private banks from 81 percent in 2009 to 66 percent in 2019. Private bank's rural market share is 15 percent while the urban market share is 33 percent. We remain confident that there is more room for large scale private banks to take away PSUs' market share as the formalization of the economy increases.
HDFC Bank continues to gain market share both on assets and the liability side of the business. Its deposit market share has reached to 7.3 percent in FY19 from 5.1 percent in FY15, however, its incremental deposit market share gain was 9.1 percent (highest in the industry) during the same period.
Currently the bank is focused to tap the rural opportunity offering retail products and banking services to the citizens across the country.
The Indian retail apparel industry is highly unorganized. Trent runs retail stores - Westside, Zudio, Star, Landmark, Zara and Massimo Dutti. The company has more than 97 percent own brand portfolio for Westside which is the largest contributor to revenues. Led by differentiated product offerings & store experience, Trent has accelerated the store expansion program in FY19 and operates more than 270 stores across more than 70 cities in India.
Focused on the speed of delivering the latest fashion each week and committed to faster store opening to scale up the reach, Trent revenues are expected to grow at 25 percent CAGR for the next 3 years. Trent’s strong balance sheet, strong business positioning and stores expansion plan make it attractive for long term investment. The company presently trades at 4 times EV/Sales.
Apollo Hospitals is the largest hospital network in India with 70 hospitals, 10,000+beds and 10,000+ doctors. The healthcare services comprise 55 percent of the revenues. The Pharmacy chain has 3,428 outlets across 20 states & 4 union territories and comprises 39 percent of the revenues. The other business contributes 6 percent of the revenues. Apollo is highly competitive compared to other destinations for medical tourists while offering similar standards and quality care at a substantially lower cost (around 65-90 percent savings versus US).
The company plans to bring down the debt to Rs 2,500-2,600 crore (net debt/EBITDA <2.5x) post completion of the pharmacy restructuring exercise. We expect the healthcare business to grow at a CAGR of 12 percent and the pharmacy business to grow at a CAGR of 17 percent for the next 3 years leading to sustained margin expansion and ROCE improvement. The company presently trades at 1.78 times FY20 EV/Sales.
Tata Elxsi offers electronic, software development and system design services to automotive and aerospace industries. The company works with leading car manufacturers and suppliers, in developing electronics and software for powertrain, infotainment, connectivity, active safety, and comfort and convenience. The software which comprised 2 percent in the total value of the car in 2002 has reached 10 percent and is expected to reach 40 percent by 2030.
The company has also diversified into Medical business which will be fastest-growing segment within Tata ELXSI. It now contributes 8 percent and growing at double-digit QoQ. We expect in the next two years to at least contribute 22 percent of overall revenue. The company has cash balance of Rs 500 crore in the book and is planning to go for M&A.
Penetration of mutual fund products in India is only a fraction of the global average. Mutual Fund industry is well-poised for strong growth due to rising awareness amongst investors. Also, rising penetration of the internet and smartphones is contributing to the ease and speed of financial services in India.
Promoted by Housing Development Finance Corporation (HDFC) and Standard Life Investments Limited (SLI), HDFCAMC has strong corporate governance and is built on the trust of investors. HDFC AMC is India’s largest and most profitable mutual fund manager with Rs 3.8 trillion in assets under management. The company has huge operating leverage as most of the costs are fixed. Secular business growth ahead and efficient operation makes it an investment candidate.
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