The market has recovered around 21 percent from lows in March but has not attained the same levels as before. Indices are moving in a range and are lacking any direction in the absence of any positive news on COVID-19 front.
"The situation is very fluid but if we are to assume that there are no large shockwaves emerging from global markets, we expect market to remain rangebound for near term till further clarity on emerging of lockdown and the coronavirus cases top out and start reducing consistently," Sumit Bilgaiyan, Founder of Equity99 told Moneycontrol.
"In case of any news in terms of sharp rise in cases globally or failure to come out with an effective medicine and vaccine the markets may witness a sharp correction. Also, further significant extension of lockdown may lead to a sharp correction," he said.
Ajit Mishra, VP Research at Religare Broking also said markets were constantly facing headwinds as the prevailing lockdown has completely derailed the economy and the news of a further delay in the stimulus package has dampened the sentiment.
Experts say valuations are still attractive given the likely growth in FY22 and investors can start accumulating quality stocks.
Here are seven stocks that are long-term in the current scenario.
Expert: Ajit Mishra, VP Research at Religare Broking
Britannia: Britannia is one of the steady players in FMCG space mainly Biscuits and Bakery segments. Strong management and its focus on growth are one of the reasons for the decent performance of Britannia. Going forward, we believe the company would deliver healthy growth driven by 1) innovating products in core categories, 2) continuous investment behind its brands, 3) Maintaining leadership position and gaining market shares and 4) Increasing distribution reach. Further, the company's cost-saving initiatives, product mix and premiumization would help in gaining revenue as well as expanding margins.
Hindustan Unilever: HUL is a strong player in the FMCG sector, with presence across segments such as Home Care, Beauty & Personal Care and Foods and Refreshment. The company’s performance has been consistent and going forward we expect HUL to outperform other players led by 1) healthy product portfolio and well-recognized brands amongst customers. 2) The company’s continuous focus on premiumization of products, 3) Its robust expansion in the natural category which is well-known among the young generation, 4) HUL has strong distribution network which helps the company reach its customers in rural as well as urban areas and lastly 5) It has constantly focused on acquiring brands which are suitable for developing business; e.g. recent acquisitions include GSK consumer business, VWash brand from Glenmark, etc.
HUL thus remains one of the preferred picks in the sector for long term on the back of strong balance sheet, earnings growth visibility and healthy return ratio.
Cipla: Cipla is the largest player in respiratory therapy with a market share of 20 percent and is the 3rd largest player in the domestic formulations market. Its India business is gaining strength as the company is enhancing the penetration of respiratory drugs. Notably, Cipla also sees opportunity in tackling COVID-19 by leveraging its wide portfolio of respiratory, asthma, anti-virals and HIV drugs. We believe, if successful, it could boost its growth prospects. Moreover, Cipla’s initiative of combining its domestic business verticals of trade generics, consumer and prescription will lead to strong synergies across portfolio and distribution chain, thereby leading to higher growth.
Further, the company has a strong respiratory pipeline in the USA as well and expects to gain significant market presence through its complex products. On the cost front, reduction in debt, cost optimization measures, as well as declining R&D expenditure (as trials on respiratory assets are completed), will lead to better profitability going forward. In short, it could be one of the promising blue-chip bets from the pharmaceutical space.
Bharti Airtel: Bharti Airtel is one of the leading global telecommunication company with operation in 18 countries across Asia and Africa and a subscriber base of 419 million. The Indian Telecom Industry has witnessed challenging times in the recent past due to an increase in competitive intensity. However, despite that Bharti Airtel has managed to gradually increase its subscriber base. Further, concerning the AGR dues of around Rs 34,000 crore to the government, the company has successfully raised Rs 21,500 crore through a combination of fresh equity and convertible bond issuance. This has allayed concerns over the sustainability of its business and the recent much-required tariff increase has been a big positive for the industry, leading to better ARPUs for the company.
We believe the worst is over for the telecom industry in terms of pricing and Bharti Airtel is well placed to benefit from the same given its strong customer base, healthy balance sheet and industry tailwinds such as increased government focus on digitization leading to increase in data usage. Further, we believe that it would be one of the least affected due to nationwide lockdown.
HDFC Bank: HDFC Bank is one of the leading private sector banks, providing a wide range of banking services covering commercial and investment banking on the wholesale side and transactional / branch banking on the retail side. Since years, HDFC Bank has been a consistent performer in terms of delivering growth. Its financial track record has been impressive with its total income and PAT growing by 20.1 percent and 20 percent CAGR over FY14-19. NII growth stood healthy at 21.2 percent CAGR during the same period, while NIMs have remained consistent in the range of 4-4.5 percent. Further, its asset quality has remained stable for years with gross NPA at 1.42 percent and net NPAs to advances below 0.5 percent.
We believe that the banking industry would witness challenges in the near term owing to nationwide lockdown which has impacted businesses. Further, HDFC Bank's high portion of retail loans could pose a risk to its asset quality. Therefore, we have seen a decent correction in the stock price recently. Nonetheless, we believe HDFC Bank is well placed to wither the storm given its quality franchise, strong balance sheet and industry-leading asset quality. From a long term perspective, it is poised for strong growth led by its increased focus on digitization and wider reach which would enable it to strengthen its market share further and deliver healthy growth.
Expert: Sumit Bilgaiyan, Founder at Equity99
Hindustan Unilever: It is the largest debt free FMCG company and demand for consumer goods is unexpected to take a major hit.
Britannia: Being a large scale domestic FMCG player with no debt and strong penetration and ability to launch lower ticket size and quantity packings ensuring that the impact on them will be low.
HDFC Bank: Judicious mix of retail and corporate loan book enabled the bank to demonstrate strong loan book growth in previous quarter despite systemic slow down. Strong underwriting and strict monitoring of loan has enabled the bank to keep its asset quality stable. Post Yes Bank crisis, HDFC Bank have witnessed growth in deposits, leading to improved CASA ratios and NIM. Stable growth aided by tax cut will further help bank to deliver around 15 percent PAT growth. By the virtue of being the largest lender, they enjoy the comfort of having some of the best of quality of borrowers, mainly large PSUs along with NBFCs, which are more likely to weather the storm and will be able to service the debt.
Sun Pharmaceutical: Compounded sales growth in last 10 years is at 21.39 percent and stock price CAGR of 11.58 percent. Management decisions and USFDA approvals were the factor leading a constant slacker and the stock has been a constant underperformer from since 2015. Since Coronavirus spread factor gave more interest & trust as well as visibility in Pharma sector worldwide, and USFDA has also been relaxed on the norms in last one month permitting for more drug manufacturing, this gives a very positive indication for the pharma sector.
Cadila Healthcare: Considering the cost conscious nature (pricing competition) of various export markets amidst the economic impact of COVID-19, we believe companies like Cadila with larger portfolio and integrated manufacturing will be the key beneficiaries. Logistic has been the biggest issue faced due to lockdown. Going ahead, we believe Cadila to outperform peers in US generics (as evident from double digit volume growth in YTD) and to outpace industry growth in the domestic formulations market led by its business restructuring and revamping of distribution. Additionally, its R&D initiatives have progressed well for monetisation in the near future.Disclaimer: Moneycontrol.com advises users to check with certified experts before taking any investment decisions.