The year 2020 closed on a strong note with double-digit gains, something no one expected when both the Sensex and the Nifty50 sank to a three-year low in March. Since then, it has been a one-way journey for benchmark indices—on the upside—and the momentum is likely to continue in 2021 as well, said experts, who didn't rule out consolidation.
The year 2021 promises a revival of economic growth and corporate earnings, which took a massive hit in 2020 due to the COVID-19 outbreak that remains a concern in 2021 but with vaccination, the threat to global recovery has been capped to a great extent.
Indian equities have entered a bull market environment as seen by the one-year rolled forward P/E at 22x rising beyond the peak of FY08 at around 20x on an ‘ex-ante basis’, experts said. The rally could well take the Nifty closer to 15,000 in 2021.
“The bull market environment prevailing in CY21 could take Nifty50 to 14,900 levels. However, if market bullishness reverts to average sentiment, the base case fundamental value is around 13,500, which indicates flat returns for CY21,” ICICIdirect said in a report.
“If a risk-off environment materialises, we expect NIFTY50 to touch 11,600 on the downside,” it said.
Indian equity markets have underperformed their global peers against the background of perennially expensive valuations. After the US elections and vaccine news, flow to emerging markets exploded in Novemeber, rising to a record high.
Data suggests that India saw $17.7-billion inflow in 12 months to November 2020, including $8.3 billion in the month. The Nifty EPS saw the first upgrade after 23 quarters in the September quarter.
“The continuation of low or zero interest rates globally can keep pushing valuations higher for the world as well as for India. But, this ride has to be taken keeping in mind the possibility of sudden and sharp reversal,” HDFC Securities said in a report.
“Asset allocation review may be required to bring down the value of equities to desired levels over the next few weeks. Indian investors need to seriously consider putting a small portion of their investible surplus by diversification and investing in stocks listed abroad,” it said.
Experts advise investors to remain stock-specific and focus on stocks in sectors that can deliver growth. The rollout of vaccine and economic recovery will keep the risk-on rally going in 2021.
“Valuations are also not in a favourable zone now, with the Sensex trading at ~22x FY22E consensus estimate earnings. Though earnings multiple can be high in the early stages of a new cycle, markets would need to be supported by upgrade in consensus earnings estimates for FY22/FY23 for a sustainable rally,” Sharekhan said in a note.
“Rollout of vaccine and further doses of stimulus in the major economies globally would also keep the global set up favourable for equities in general. Consequently, we remain constructive on equities as an asset class and look at every dip as an opportunity to buy,” it said.
In terms of sectors, Sharekhan likes NBFCs, engineering, pharma, IT services and select companies in the consumer and banking sector.
Here is a list of 10 stocks from various brokerage firms for the year 2021:
Bandhan Bank is India’s largest MFI company with over 20 percent market share in India and over 50 percent market share in the east and northeast.
It has consistently demonstrated a strong track record in growing its balance sheet/earnings (AUM grew by CAGR 44 percent in FY10-20).
As in FY20, its customer base stood at around 20 million customers with a loan book of Rs 76,000 crore. Post the merger with Gruh Finance, mortgages account for around 26 percent of the loan book.
In the next five years, it aims to transform itself into a one-stop solution for all banking requirements of mid and low-income group customers.
Birla Corp (BCL) has a significant presence in central (Madhya Pradesh), northern regions (Uttar Pradesh and Rajasthan), West Bengal and Maharashtra. It has 4.2 percent of the market share in the Indian cement industry.
The company has finalised a plan to scale up its capacity to 25 MTPA by 2025 from 15.6 MTPA, which provides strong visibility for future growth.
GAIL is planning expansion in petrochemicals, speciality chemicals and renewables to supplement growth in its core business of natural gas marketing and transportation.
Apart from this, it plans to invest more than Rs 45,000 crore over the next five years to expand the National Gas Pipeline Grid and city gas distribution network.
However, any changes in regulation by PNGRB in the city gas distribution and gas transmission industry concerning marketing exclusivity can hurt GAIL.
Among the state-run oil marketing companies, HPCL is more focused on downstream business, which is marketing and distribution of crude derivative products.
It has a wide distribution and marketing infrastructure network, including a network of cross country pipelines, terminals, depots, and 16,707 retail outlets.
HPCL plans to invest more than Rs 60,000 crore in the next five years to build and develop infrastructure, including the implementation of significant projects such as the capacity expansion at its refineries, expansion of its pipeline network and setting up of new pipelines. Any development on BPCL divestment could lead to a rub-on effect on HPCL’s valuations.
HUL is a market leader in multiple FMCG categories and has the widest distribution reach with more than seven million outlets. The company is debt-free and cash-rich (around Rs 5,113 crore cash as of FY20) after recent acquisitions of GSK’s consumer business.
We expect substantial synergy benefits to play out in the next two-three years.
In H1FY21, the company has launched more than 100 SKUs in the hygiene category, which along with the company’s other health and nutrition brands, forms 80 percent of the portfolio that has seen 10 percent growth.
The stock price has remained muted. Earnings may surprise on the upside, and the stock could get rerated.
Amarjeet Maurya, AVP-Mid Caps, Angel Broking Ltd
Hawkins Cookers Ltd (HCL) operates in two segments—pressure cookers and cookware. We are positive on Hawkins cookers on the back of strong revenue outperformance compared to its peers, gaining market share, increase in penetration of cooking gas, strong brand name and a wide distribution network and healthy demand for kitchen product post-COVID-19.
Swaraj Engines (SEL) is engaged in the business of manufacturing tractor diesel engines for M&M. During the 2QFY21, SEL reported strong ~31% volume growth.
SEL is expected to report better numbers on the back of strong growth in the tractor industry (on account of good monsoon, higher khariff acreage, and continued government support, including higher MSPs for key crops). It will benefit the players like Swaraj Engines.
Whirlpool of India
Whirlpool of India (WIL) is engaged in manufacturing and selling of refrigerators, washing machines, air conditioners, microwave ovens, built-in and small appliances and caters to both domestic and international markets.
WIL’s product portfolio's presence in the lower penetration category would lead to higher growth. Further, increasing focus on emerging categories like water purifier, AC, and kitchen hoods & hobs and filling product portfolio gap by launching products will also help.
Healthy profitability is expected on the back of a strong brand, wide distribution network, capacity expansion and strengthening product portfolio.
Radico Khaitan Ltd (RKL) is a leading manufacturer of IMFL. It has a strong pan-India presence with growing sales in the premium brands like Magic Moments Vodka, 8 PM Premium Black Whisky, etc.
During 2QFY21, RKL outperformed the IMFL industry. Radico reported sales growth of around 11 percent, UB revenues de-grew - 43 percent yoy, UNSP degrowth-7 percent and Pernod Ricard de-growth -13.5 percent.
RKL should report healthy top-line and bottom-line growth on the back of growing market share, new products, increase in premium products mix, strong brand name and a wide distribution network.
Page Industries Ltd (PIL) is engaged in the manufacturing distribution and marketing of innerwear athleisure sleepwear and swimwear for men, women, and kids.
The company is the exclusive licensee of the Jockey brand. Jockey is the market leader in the premium innerwear and leisurewear category in India.
Healthy revenue growth and profitability is expected on the back of a strong brand, wide distribution network and entry in new segments like athleisure and kids.Disclaimer
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