Indian market witnessed sell-off in September and October, but managed to stabalise in November. Both Sensex and Nifty reclaimed crucial resistance levels which suggests that the upswing is still intact.
The S&P BSE Sensex reclaimed 35,000, while Nifty50 broke above 10,600. Experts suggest investors should look at stocks which are showing earnings visibility.
Downside risks to earnings estimates have increased over the past few months given the liquidity concerns, rising cost of funds and input cost inflation. The stock under consideration should also be looking strong on the technical charts, they say.
“The stocks which are trading at a reasonable valuation have the potential to realise enough attention from the investing community to transform into a largecap in the near term,” Vipin Khare, Director- Research, William O'Neil India told Moneycontrol.
“Investors are advised to look for fundamentally strong stocks trading above their 50- and 200-DMA, and are about to break out on higher volume,” he said.
He further added that some good quality stocks include VIP Industries and Vinati Organics. On the other hand, technically weak stocks which are unable to sustain above 200- or 50-DMA should be avoided.
We have collated a list of stocks where brokerage firms have initiated coverage in November. These stocks look strong from a fundamental point of view and can give up to 35% returns.
Automotive Axles: Buy| LTP: Rs 1,415| Target: Rs 1,838| Return 30%
Axis Direct initiated coverage on Automotive Axles with a buy rating and a target of Rs 1,838 which translates into an upside of about 30 percent from Monday’s closing price.
Automotive Axles, a JV between Kalyani Group and Meritor, is a leading player in the manufacturing of automotive axles for Medium & Heavy commercial vehicles.
It has been the leader in the domestic axles industry (30% market share) and is now all set to benefit manifold from rising share of multi-axles vehicles, post-implementation of GST.
Automotive Axles Industries is well positioned in the industry owing to its substantial market share, diversified clientele, strong technological capabilities due to collaboration with an international player and growth in demand for the heavy-duty, multi-axle vehicles
Newgen Software Technologies: Add | LTP: Rs 315.40| Target: Rs 340| Return 8%
ICICI Securities initiated coverage on Newgen Software Technologies with and ADD rating and a target price of Rs 340. Newgen is a low code application development platform company which competes with an ecosystem of global players like Appian, Pegasystems, IBM, OpenText, and TIBCO.
Newgen is an established player in the markets of Business Process Management (BPM), Enterprise Content Management (ECM) and Customer Communications Management (CCM), which cumulatively represent an addressable market opportunity worth about $22.5bn growing at 7-10%.
The brokerage firm expects revenue, EBITDA and PAT for Newgen to grow at an FY18-FY20 CAGR of 18.5%, 27.7%, and 31.9% respectively.
Newgen is trading at a valuation of 18x FY20E EPS - elevated working capital, slow decision making In India Government (Smart City) and PSU banking segments and recent INR appreciation are likely to cap the multiple in near-term.
Indian Hotels: Buy| LTP: Rs 137.80| Target: Rs 163| Return 19%
Motilal Oswal initiated coverage on Indian Hotels with a buy rating and a target price of Rs 163. Indian Hotel Company (IHIN) is the second largest hotel chain operator in India, with presence across the pricing spectrum through its four brands – Taj, Vivanta, Seleqtions, and Ginger.
Around 85 percent of IHIN’s room inventory is in the domestic market, while the rest is outside India. Domestic business remains the key driver, contributing around 78 percent of its consolidated revenue.
We expect consolidated revenue/EBITDA CAGR of 9%/25% over FY18-20. IHIN’s balance sheet is expected to strengthen further due to asset monetization and higher FCF generation.
On a one-year forward EV/EBITDA basis, IHIN has historically traded at a 10-year average of 21.4x. However, taking the last cycle into account (FY05-18, 14-year average), the stock has traded at 19.7x one-year forward EV/EBITDA (at 13.5x over FY04-08).
Bajaj Finance: Buy| LTP: Rs 2,392| Target: Rs 3,000| Return 25%
HSBC initiated coverage on Bajaj Finance with a buy rating and a target price of Rs 3000. The management has demonstrated its execution capability, making BAF one of the fastest-growing and most profitable banking, financial services and insurance (BFSI) companies in India, commanding a valuation premium to peers.
Bajaj Finance is a disruptor in the traditional retail lending business that has changed the way retail credit is delivered to Indian consumers.
The business model might appear easily replicable, but in the past decade, the industry hasn’t seen any player scale up in this line of business to this degree while maintaining profitability and quality like BAF.
HSBC believes that a strong and a highly nuanced business model enables BAF to stand out and that this underpins its strong valuations as well as our confidence that there is more upside.
NTPC: Buy| LTP: Rs 144| Target: Rs 195| Return 35%
Angel Broking initiated coverage on NTPC with a target of Rs 195. NTPC India (NTPC) is the largest power utility in the Indian Power sector, having 24 percent & 16 percent market share in the power generation & installed capacity in India respectively.
The private sector is in bad shape on the back of poor business economics on back of a slew of factors; mentioned in the report. On the other hand, NTPC India, which is a competitive player in the industry, supplies all its power under the long-term PPA (Power Purchase Agreement); is insulated to Industry dynamics.
Over the next 4 years, the company’s CWIP will be capitalized. Thus, CWIP ratio to Net Fixed Assets will come down; due to the commercialization of 4-5GW capacity/year; enhancing the regulated ROE of the company and improving growth.
Thus, given the pain in the sector NTPC on back of its positioning and valuations at 1.1xPBV FY2019E valuations offers good entry for long-term investors.
Disclaimer: 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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