With midcaps and smallcaps expected to outperform largecaps, especially after September quarter earnings, this is the right time to build a portfolio, analysts have said.
Recent data suggests that the economy is on the path to recovery. The September quarter earnings along with management commentaries also seem to point to that as the government continues its efforts to revive demand.
The equity benchmarks have been marching towards the record highs seen in January 2020. The BSE Sensex reclaimed 41,000-mark on November 5 and the Nifty50 hit 12,100, though some part of the rally is fuelled by by US elections.
Both indices have gained around 60 percent from the lows of March 23, with midcap and smallcap mirroring the performance.
"Overall we remain cautiously optimistic – cautious due to valuations and growth uncertainty for India, optimistic because there are some visible signs that consumption is reviving. Expanding central bank balance sheets and strong inflows into equity markets have kept the markets buoyant over the last six months, any reversal, on this may impact the overall bullish sentiment," Mihir Vora, Director & Chief Investment Officer at Max Life Insurance told Moneycontrol.
He said the overall themes remained the same—consumption revival, exporters and Make-in-India plays.
Axis Securities, too, is confident about digital, pharmaceuticals, private banks, telecom, staples, personal transportation and rural themes and also sees potential in housing in 2021.
"Even as uncertainty could continue post US elections, fiscal stimulus likelihood will rise and the dollar could weaken, which will benefit the emerging markets. 2021 is likely to be a good year for the emerging markets as inflows are likely," the brokerage said.
Given the outperformance of midcaps and smallcaps over largecaps, especially after the September quarter earnings, analysts say this is the right time to build a portfolio.
Here is the list of 20 stocks that can return 13-49 percent:
Brokerage: Axis Securities
ICICI Bank is well placed with stable NIM, low cost of funds and healthy capital adequacy. The recent capital raise has improved Tier I to 17.9 percent, which provides adequate balance sheet buffer. We believe valuations are undemanding for the stock, given the strong liability franchise and leveraging opportunities across group products. We remain positive on the stock and maintain buy with SOTP of Rs 504.
We believe that credit costs will remain high on asset quality concerns for the non-old business. We expect cost optimisation to aid profitability. Balance sheet liquidity remains comfortable with no funding challenges. While cautious on the non-gold business, we believe gold business will support overall performance in uncertain macro conditions. We expect MGFL to maintain ROAE of around 24 percent over FY21/FY22. Gold lending is a high moat business and specialists like MGFL will continue to benefit.
While loan growth moderation is expected along with slight asset quality deterioration on account of Covid-19, we expect the company to recover faster than its peers due to its loan mix and negligible developer exposure. Lower cost of funds should aid the company in maintaining NIMs while the loan mix profile skewed towards salaried segment will help in maintaining asset quality. We expect lower provisions and improved NIM for FY21E. We remain positive on the stock, given its loan book profile, stable liquidity position and robust CAR (25 percent) and recommend "buy" with a target price of Rs 515.
We expect NOCIL to register revenue/earnings CAGR of 20/24 percent respectively over FY20-23E. This growth will be driven by 1) utilisation ramp-up at Dahej; 2) relatively high entry barriers and long customer approval cycles, 3) debt-free status maintained even in challenging times and 4) likely ADD levy to support margins in the medium term. At CMP, the stock trades at an attractive 9.6x FY23 EPS, leaving enough room for an upside.
We expect VBL to register revenues/earnings CAGR of 11/29 percent, respectively, over CY19-22E. This growth will be driven by 1) consolidation in newly acquired territories, 2) distribution led market share gains, 3) cost efficiencies and margin tailwinds (cost rationalization and benign RM) should support EBITDA margin in CY20E despite weak operating leverage.
We believe CCLP is well placed to deliver steady earnings over the medium term given 1) expertise in customised blends & cost-efficient business model, 2) long-standing client relationships (around 50 percent revenue contribution from brand owners) 3) largest exporter of instant coffee in India 4) presence in Vietnam, world’s largest Robusta growing country 5) capacity additions in value-added products (FDC & small packs) and 6) steadily improving branded retail business.
We expect Endurance Technologies to outperform the industry, given its sticky relations with OEMs, broad product basket, market leadership with market share of around 35 percent in suspensions, 25 percent in hydraulic braking system, 20 percent in disc braking system and 16 percent in transmission. New products along with tailwinds for the two-wheeler sector will support Endurance Technologies.
Being in an oligopoly market, SSWL commands leadership with a market share of around 55 percent in steel wheel rims and around 20 percent in alloy wheels. We expect SSWL to outperform the industry given its sticky relations with OEMs across all auto segments—2/3W, PV, CV, and tractors.
We are bullish on MNDA’s ability to comprehensively beat industry performance by 1) leveraging the broader vehicular trends of industry like EV, premiumisation, automation 2) strategic inorganic acquisition to enhance product offering and gain market share 3) maintaining balance sheet discipline and maintain optimal leverage, 4) investing In R&D to bring technological change 5) tap its deep-rooted relationship with OEMs to increase kit value. Given its success in developing import substitution products, it would be able to capture the business opportunities offered by the ‘Atmanirbhar Bharat’ move in the auto sector. New product lines to aid margin and growth.
DRRD has leveraged its 100 ANDAs portfolio and launched high-value products with limited competition in the last two years. Further, commentary from the top six generic pharma players in NAG reveals pricing stability in the business. In the next two years, DRRD has a healthy pipeline to launch drugs like gRemodulin, gDexilant, gNuvaring, gCopaxone and gKuvan and potentially gVascepa that could be a gSuboxone kind opportunity. We expect revenue CAGR of 8.7 percent in constant currency for North America generic business over FY20-FY23.
Driven by market share gains and new launches in these high-margin biosimilars, the biologics segment is expected to post robust revenue growth (approximately in mid-twenties) over the next two-three years. Biocon management has set an ambitious target to cross $1 billion revenues for biologics over the next couple of years (from around $300 plus million in FY20). Biocon is targeting eight different biosimilars to be sold by FY22, thereby addressing a market size of $33 billion. The company is planning to deliver at least three molecules between FY23 and FY25.
Tech Mahindra posted a robust broad-based growth in Q2FY21. We believe Tech Mahindra has a resilient business structure from a long-term perspective. We recommend "buy" and assign 16x P/E multiple to its FY23E earnings of Rs 62.7, which gives a target of Rs 975 per share.
Bharti Airtel reported solid numbers for Q2FY21, beating consensus estimates both on financial and operating parameters. The India wireless business reported robust numbers with an ARPU increase of 3 percent QoQ to Rs 162, which was significantly higher than expected. Data consumption has continued to register very strong growth. We maintain ARPU assumptions and forecast 13/17 percent CAGR for Revenue/EBIDTA over the period FY20-23. Profit growth will be even more significant considering FY20 was a loss for the company.
HCL Tech reported better than expected Q2FY21 numbers on both the margin and revenue front. Strong revenue growth in Mode 2 business (15 percent YoY) helps HCL Tech to achieve higher growth momentum in the longer term with more advance technologies.
Better business matrix will help to generate higher operating business even if there is pricing pressure across verticals. We believe better business matrix and large long-term contracts make HCL Tech a promising investment as compared to its Indian peers. We believe HCLT has a resilient business structure from a long term perspective.
Hindustan Unilever (HUL) delivered decent numbers for Q2FY21, both on the volume and profitability front amid headwinds on margins slump in discretionary consumption. We believe, H2FY21 will see the recovery across segments and HUL will capture decent market share backed by an increase in advertising and promotion expenses and its focus on innovation and market development (launched 100+ new SKUs in the last six months) compared to its peers.
ITC with diversified operations across non-cyclical sectors, a resilient business model, strong-brand leadership position in cigarette business, product innovation track record & premiumisation drive is establishing itself as a FMCG major. Despite the ongoing COVID-19-related slowdown, we see recovery signs in recent months and the current valuation attractive. Besides, we expect the cigarette business to revive in the future with strict regulation from government on curbing the sale of illegal cigarettes.
Respiratory drugs has seen traction in demand owing to COVID-19 and market leader like Cipla is eyeing greater attention from the investment community. The company was able to garner 65 percent market share (Q1FY21) in Proventil market with its newly launched Albuterol Sulfate. Approval for another promising ANDA, Advair Diskus of GSK (having an addressable market of $2.9 billion) is also expected soon. Cipla's domestic business is on track after disruption in trade generics.
Granules India’s long-term investments in backward and forward integration from APIs to FDs (Finished Dosages) is bearing fruits now as demonstrated by extraordinary last two quarters. The company has also managed to keep a check on its balance sheet by reducing gross debt from Rs 870 crore in the previous quarter to Rs 861 crore in the current quarter.
Persistent Systems posted a robust Q2FY21 performance, led by large deal execution, while margin improved aided by cost optimisation and higher utilisation. The mid-sized IT firm won several large deals across technology, BFSI and medical devices verticals, providing good medium-term visibility. Wage hikes will be awarded in Q3FY21, which will be offset by revenue growth and offshore shift of large deals. There remains good scope for cross-selling services between Alliances and TSU. The new CEO appointment removes a stock overhang. We maintain buy rating, with a target price of Rs 1,415.
Promoter holding has been reduced to 74 percent after Rs 800 crore worth of funds raised through QIP issue (allotment at Rs 707 per share) on October 8, 2020. Additionally, the board of directors approved issue of NCDs worth Rs 100 crore to strengthen its liquidity. It is a good quality stock with strong asset quality, expected regional penetration & high promoter holding. Accordingly, we assign P/ABV multiple of 3.0x to FY22E consolidated adjusted book value of Rs 281 per share to arrive at a target price of Rs 843 per share and maintain buy rating on the stock.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.