Investors are advised to remain stock-specific as the upside remains fairly limited but small & midcaps could play catch up
Indian market closed the year 2019 on a buoyant note with Sensex and Nifty50 rallying over 10 percent. It was a historic year for D-Street as Sensex made a new high above 41,800 while Nifty50 came close to 12,300 levels.
The year 2020 will also be a year when benchmark indices will hit new milestones and probably Nifty will surpass 13,000 levels and 45,000 mark for Sensex, suggest experts.
Foreign institutional investors continued to reaffirm their faith in Indian market in 2019, and the trend is likely to continue in 2020 as well. In CY19 till date, India has attracted USD 14.3 bn from FPIs and USD 7.5 bn from local mutual funds.
“We expect FPI flows could remain positive in CY20 and SIP flows to remain sticky with an annualized run rate of ~USD 14-15 bn. Earnings of Nifty-50 is expected to report a robust 19% compounded annual growth rate (CAGR) for next three years, a sharp increase over the previous three years CAGR of 8%,” Rusmik Oza, Sr. VP (Head of Fundamental Research-PCG), Kotak Securities Ltd told Moneycontrol.
“We have used a benchmark of 17.5x forward PE, which is one standard deviation above the 10-year average to derive at our one-year Nifty target. Our one-year target of Nifty-50 and Sensex works to 13,400 and 45,500, respectively. This works to an upside of ~10% from current levels,” he said.
Investors are advised to remain stock-specific as the upside remains fairly limited but small & midcaps could play catch up in the year 2020 that could possibly turn out to wealth-creating opportunities for investors.
“While midcaps outperformed large-caps significantly in FY15-18, it witnessed a reversal in trend amid liquidity issues along with IL&Fs crisis and other corporate defaults over the past 18 months,” ICICIdirect.
“In turn, this skewed the investor’s focus on quality companies with high governance standards and stable growth. Hence, only quality companies in both these indices have outperformed the market as seen in the below table. Going forward also, we believe the quality stock selection approach will continue to find favour rather than an index specific approach,” he said.
We spoke to various experts and here’s what they have recommended for the year 2020:
Expert: Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor
The stock has closed positive for the eighth consecutive calendar year. Since 2012, the stock has rallied over 360 percent. Dabur is planning to expand into healthcare, foods and personal care segment by acquiring new companies and reviving its sales.
It is also looking towards increased rural penetration by increasing its rural network to cover up to 55,000 villages.
The stock has traded at a record high of Rs 178 and has rallied over 90 percent in the calendar year 2019 so far. Price has formed higher highs & higher lows formation in the broader time frame.
The financials of Manappuram Finance Ltd show net sales growth of 16.79 percent and core EBITDA growth of 20.58 percent.
The company has jotted down 4.92 percent ROA (Return on Assets), 19.40 percent ROE (Return on Equity) and 14.34 percent ROCE (Return on Capital employed).
The net sales growth of the company being 16.79 percent, core EBITDA growth being 20.58 percent and PAT growth of 14.71 percent signify the sound operations and a profitable business model which provides good scope for appreciation of the stock.
In calendar year 2019, the stock has traded with volatility in first two-months with stock price declining as much as 27.63 percent, and after consolidating in a narrow range, stock price gained over 110 percent since August 2019.
This stock seems to be very promising because of its 46.85 percent Return on Equity and 32.73 percent Return on Assets.
With changing business model i.e. shifting from pure broking to an array of other services like advisory services, wealth management etc., could reduce the volatility in earnings and revenue.
Dividend pay-out ratio of 2.20 is a very lucrative aspect which might give rise to a lot of bullish sentiments along with a cash surplus balance sheet which is icing on the cake.
The stock was listed on NSE in August 2019 and has jumped as much as 87.8 percent from its listing price within four months.
With a ROA of 20.10 percent, ROE of 43.64 percent, & ROCE of 62.77 percent, it can be said that this is a profitable business. It has had an EBITDA growth of 58.79 percent and PAT growth of 88.87 percent which shows its sound revenue from operations thus it can be a stock with great potential.
The financials of this organisation boast figures of 14.52 percent ROCE (Return on Capital Employed), 13.62% of ROE and 3.3 percent of ROA along with Net sales growth of 38.36 percent.
This company has receivable cycle of 89.55 days and Payable cycle of 117.66 days which is a very favourable and efficient position.
Expert: Ritesh Asher – Chief Strategy Officer (CSO) at KIFS Trade Capital
The Company has 37 percent market share in Indian Defense Electronics. Its core capabilities are in radar, and weapons systems, defense communication & electronic warfare.
It derives incremental contributions from non-defense segments like homeland security, cybersecurity, and smart cities, which are expected to contribute ~20 percent to the revenue albeit with lower margins over the next three to five years.
We expect BEL to report revenue, EBITDA and PAT CAGR of 12.9%, 3.6%, 1.8% respectively, in FY19-21.
Wipro is a leading information technology, consulting and business process services company. The company had a dedicated workforce of over 180,000 serving clients across 6 continents.
If we consider the company’s half-yearly performance it registered 4 percent YoY hike in sales, the company’s cost optimization strategy and strong client relationships will help the company gain lost ground in the long term.
SBI is the largest commercial bank in India with over 1/5th market share of the Indian banking sector. It has a strong domestic presence with more than 22,090 branches and an international presence with 198 branches across 37 countries.
Within PSU banks, SBI remains the best play on a corporate recovery in the Indian economy. With heavy NCLT resolutions lined up, we believe asset quality improvement is imminent and project Gross/Net NPA ratios to moderate to 6.9%/3.5% by FY21E, and with government measures to boost the PSU health SBI bank is supposed have brighter future among its peer group.
The Dominos brand owned company is structurally attractive and have the capacity to outperform micro & macro-economic concerns.
The company is a market leader in the pizza segment through its exclusive rights to operate Domino's Pizza brand outlets in India, Sri Lanka, Bangladesh, and Nepal. Pizza is the largest sub-segment in the QSR space, which is expected to grow at more than 15 percent per fiscal over the medium term driven by an increase in consumer propensity to eat out, rising disposable income, a greater need for convenience.
On the financial front, the company is available at an attractive valuation with debt-free status and the Return on capital employed remained above 25 percent.
HDFC Bank is among the largest private sector banks in India with total assets of Rs.12,44,541 crore as on March 31, 2019. The bank is a market leader in the non-mortgage retail asset segments, such as commercial vehicles and car financing.
It has also been expanding its geographical reach over the past few years; incremental branches have been primarily in semi-urban and rural areas. In 2019, bank had 5130 banking outlets.
While if we take a look in banking sector HDFC Bank is available at very attractive valuation with low PE high EPS earning compared to its peer group. The bank maintains healthy financials and risk status as advances and deposits grew amidst weak market sentiments as well operating performance improved with cost efficiencies in FY2019.
Expert: D K Agarwal Chairman & MD, SMC Investments and Advisors Ltd
The bank continues to focus on growing the core operating profit in a risk calibrated manner. The bank aims to improve the share of profitable market opportunities by making a delivery to the customer more seamless and frictionless through digitization and process improvements.
The business of the bank increased at an accelerated pace of 19 percent on a YoY basis to Rs 13,09,632 crore at the end of September 2019, supported by deposits growth rising to 25 percent at Rs 6,96,273 crore at end September 2019. The loan book of the bank increased 13 percent at Rs 6,13,359 crore.
The company has strong & steady revenue growth momentum and sustainable margins. It shall continue to focus on growing the penetration in the current operating areas by increasing the PNG connections and additional CNG stations while tapping the untapped potential by an expeditious rollout of distribution network in the newly acquired geographic areas as well.
The management of the company is aiming at setting up more than 63 CNG stations in the financial year 2020, for the target to increase the volume of 9-9.5 mmscmd in FY20.
The debt stands at Rs 1,800 crore and the management of the company is looking at an EBITDA margin of around 13 percent in FY20.
The company accords high priority to the domestic formulations business, which offers a significant value proposition. It has consistent, strong free cash flows, with a low debt-equity of 0.02x and also plans to continue to pursue focus on harnessing the potential of the existing products, launch new products selectively and achieve increased productivity.
The management of the company is focused on harnessing the potential of existing products, launching of new line extensions and achieving of new line productivity will be pursued with scientific product promotions and aggressive marketing strategies.
With the consistency in performance and a healthy pipeline signal strong growth, the company is expected to see good growth going forward. It continues to impress with industry-leading growth across all parameters.
In addition, strong market position reflected in ability to consistently raise ticket prices and strong screen pipeline will help in increasing average footfalls and consumer spending.
The management feels that there is enough scope for increasing the occupancy levels if the seats can be filled from Monday-Thursday and is exploring different concepts to do so.
The company is continuously performing well and delivering in all the three parameters of revenue, profitability and order intake. T&D business has delivered a stellar performance, backed by robust execution in SAARC and the Americas.
The Railway business continues its growth momentum as it expands portfolio in other segments. The management of the company expects international business to pick up with large order inflow from Jordan, Saudi, Far East (Indonesia, Thailand), etc. and international T&D, sub-stations, and civil infra will be key drivers for FY20.
Moreover, the company has maintained its annual guidance of 20 percent growth for FY20 revenue. The company has a robust and well-diversified order book and its management is confident of 15-20% growth in revenue for FY2020.
The company expects its Railway business revenue to register a growth of 20-25% for FY20 and that of T&D as a whole is expected to register a growth of 15 percent for FY20.
Expert: Vinod Nair, Head of Research at Geojit Financial Services.
In Q2FY20, Gross written premium grew 33.3 percent YoY driven by new business and renewal premiums which grew 33.8 percent and 32.8 percent YoY respectively.
In H1FY20, SBI Life’s market share increased 200bps YoY to 21.8 percent in terms of NBP (new business premium) among the private insurers and AUM increased 22.7 percent YoY to Rs. 154,760cr.
AFL is a leading manufacturer of Shrimp Feeds and is also a Shrimp processor and exporter. It has a tie-up with Thai Union Group, Thailand.
In the Feed segment, which contributes ~78 percent of total revenues, although the industry consumption growth is expected to be flat, the company expects growth of 12-15%, driven by market share gains (48% vs. 45% YoY).
The recent improvement witnessed in farm-gate and stabilization in export prices provides a better outlook for both Feed & Processing segments. We have a BUY rating on AFL and it is valued at 16x considering the improved industry outlook, healthy growth & RoE and no Debt.
Expert: Ajit Mishra, VP Research, Religare Broking
L&T boasts of a strong order book, high earnings visibility and healthy project pipeline. Further, continuous monetization of non-core assets has been improving its working capital efficiency and likely to improve its returns. The recent correction in the stock has also made its valuation attractive.
The FMCG sector is currently facing a slowdown, however, revival is expected in the medium to long term.
Further, management expects a revival in the economy and thus it continues to focus on strengthening its presence by increasing market share, expanding distribution reach in both rural and urban areas, premiumizing and launching innovative products, steady capacity addition and improved product mix.
RNAM is one of the leading AMCs in India with a total AUM of ~Rs. 4,530 bn. The buyout by Nippon Life Insurance (75% ownership currently) from Reliance Capital removes the overhang on RNAM.
Further, the company has taken several initiatives in order to rebrand and strengthen the balance sheet which would help regain lost market share and thereby would narrow the valuation difference with HDFC AMC.Disclaimer: The views and investment tips expressed by investment 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.
Subscribe to Moneycontrol Pro's Annual plan for Rs 399/- for the first year. Use coupon PRO2020 (Available on Web & Android only).