Vinod NairGeojit Financial Services
Market is heading higher with minor gains on a weekly basis, led by good Q1 results, but at the same time, market is also concerned about the risk-off trend in the domestic & global market. This trend can continue in the near term as risk-taking ability has reduced led by increase in cost of funds, premium valuation and lack of earnings growth compared to high expectations.
Given the headwinds, strength of the market has narrowed within which positive momentum is segregated to super large blue-chips. This positivity can get wider as earnings growth return. There are opportunity for retail investors to look at high quality stocks available at fair valuation with positive outlook. Some of the prices and valuation have become very attractive in the long-term.
During the year, main indexes (Nifty50) may be positive but it is limited to the 15 stocks whereas rest of the stocks corrected by an average of -15 percent. At the same time if we look at the broad market, mid & small caps are down by more than 20 percent.
In a nutshell, wealth of the domestic investors has reduced, subject to their exposure in large and defensive stocks. Sectors which have done well includes consumer discretionary, IT, private banks and pharma.
Since January, we have been advising our clients to shift their exposure to large caps in anticipation of volatility in the future and premium valuation, which we are still continuing with stock-specific outlook.
We suggest investors to focus on the above mentioned sectors and high quality midcaps for which prices have become cheaper after the consolidation in the last six months.
Here are the 3 top stock trading ideas which can give good returns in the near term:
PVR: Rating: Buy | CMP: Rs 1,114 | Target Price: Rs 1,293 | Return: 16%
PVR owns and operates multiplexes across 19 States and UT’s with a total of 634 screens. Major income segments for them are Box office (Ticket revenue), Food & Beverage and Advertisement income.
Q1FY19 revenue grew at ~7 percent YoY while PAT grew by 18 percent YoY owing to better than expected operating leverage. EBITDA margin remained stable around ~20 percent. Net F&B revenue grew by ~23 percent YoY due to rising consumer preference to spend at multiplexes.
PVR has added 9 new screens in Q1FY19 and has set an ambitious target of 90 screen additions next year. Considering better product content in the coming quarters and stable margins, we upgrade our ratings to BUY from accumulate with a target price of Rs 1,293.
CRISIL: Rating: Accumulate | CMP: Rs 1,773 | Target Price: Rs 2,000 | Return: 13%
CRISIL, a Standard and Poor’s company, is India’s foremost ratings, research and analytics services provider with a strong track record of growth and innovation.
CRISIL’s revenue grew by 7 percent YoY in Q2CY18 backed by robust growth in advisory segment. Net profit increased by 14.7 percent YoY on account of favourable forex movement. Revival in corporate capex and improvement in banking credit growth are positives on long term basis.
We expect revenue/PAT to grow by 12 percent/16 percent CAGR respectively over CY17-19E.
Jyothy Laboratories: Rating: Accumulate | CMP: Rs 222 | Target Price: Rs 252 | Return: 14%
Jyothy Laboratories is an Indian FMCG player with products across Fabric care, Dishwashing, Mosquito repellents & Personal Care.
JLL has reported a stipulating earnings growth of 57 percent YoY in Q1FY19 supported by 18 percent growth in revenue and 240 bps improvement in EBITDA margin. JLL to witness strong demand supported by good monsoon, strong government focus on rural and recent MSP hike.
JLL entered into new product category of toilet cleaner and plans to enter in Ayurveda space. With JLL’s strong focus on innovation and new launches, strengthening position in existing brands and gaining traction into newer geographies we expect strong volumes to continue and factor 12 percent and 30 percent CAGR in revenue and PAT respectively over FY18-20E.
Disclaimer: The author is Head of Research at Geojit Financial Services. 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.
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