Representative Image (REUTERS/Amit Dave)
The Finance Minister and the Reserve Bank of India (RBI) last week unleashed a slew of measures to cushion the impact of the economic slowdown caused by the COVID-19 outbreak.
Indian market which is now in the bear phase will find it difficult to get back on its feet in the near to medium term but stock-specific action is likely to continue.
Within a couple of days of the announcement of the 21-day lockdown across the country, the govt. and the RBI have made some major announcements to cushion the impact of the economic crash.
Various economists and analysts suggest that the COVID-19 outbreak will significantly impact the Indian economy. UBS forecasts India's GDP growth could be 2.5 percent, while in a more severe pandemic scenario it could be negative, at -0.2 percent on a YoY basis in FY21.
According to Emkay Global, the lockdown of the nature we are going through should shave off Rs 2.3 lakh crore from GDP every week it is continued.
“Although the govt's Rs1.7-lakh crore package (0.83% of GDP) addresses some of the most basic issues, it pales in comparison with both the scale of the problem and what is being done by other countries,” it said.
The noteworthy measures include free food grains and pulses, cash transfers to widows, elderly and women, and free LPG for three months.
Indeed, the RBI's announcement of loan moratorium should be seen as a logistically faster and more efficient way of alleviating immediate cash flow needs of the economy – but coming at the cost of banks’ profitability.
Experts feel that the coming few months are expected to be difficult to navigate as global trade has dwindled and all financial markets have witnessed a swift meltdown thereby opening up opportunities for long term investors to dip in.
“On a historical basis, we believe broader markets have coincided with long term averages currently, which does not surely indicate a bottom. However, at the same time it has started throwing up opportunities in the large-cap/midcap space,” ICICIdirect said in a report.
“In the current milieu, some of the large and best-managed companies are available at attractive valuations on a historical basis. Hence, in our view, one should venture out and accumulate companies, which have gone through such challenging cycles and have come out much stronger when such events subside,” the report added.
We spoke to various experts and collated a list of stocks that are likely to benefit the most from the stimulus package announced by the govt. & stocks which could offer stable returns:
Expert: Naveen Kulkarni, Chief Investment Officer, Axis Securities Limited
The need for telecommunication has increased significantly because of lockdowns. The revenues in the prepaid segment could be impacted as daily wage earners may not recharge their phone but data consumption will increase further.
Thus the overall revenue and earnings impact will be limited. Thus, a good time to accumulate telecom stocks.
It is the largest IT company that has solid cash balance and developed countries are likely to come out of lockdowns ahead of India. While order flows will reduce but rupee depreciation could help.
RBI's significant rate cut means that rupee is more likely to depreciate further. Thus TCS is a good defensive bet in this market.
HDFC Bank has efficiently focused on retail business and has garnered strong liability franchise to yield superior profitability over the years. Seasoned portfolio and management experience led to higher than industry advances growth at 24 percent CAGR in FY08-19.
Advances were at Rs 9.3 lakh crore as of December 2019, with major traction towards the retail book. Enriched customer experience, a strong network of 5345 branches and a focus on digitisation has enabled building a strong liability franchise with CASA comprising 40 percent of deposits.
Such high CASA limits the cost of funds and thereby enables to report of superior NIM above 4 percent consistently. Prudent asset quality has been core to the bank. The same has safeguarded the bank from NPA issues faced by the industry in recent fiscals.
Kotak Mahindra Bank:
Kotak Mahindra Bank (KMB), promoted by Uday Kotak, reported a loan book of Rs 2,16,774 crore as on December 2019. It has built a branch network of 1539 branches. Increased focus towards retailisation of loans has enabled KMB to earn the best NIM in the industry at 4.7 percent.
The savings rate was hiked by KMB to 6 percent in 2011, boosting savings deposits growth to Rs 2,39,354 crore by December 2019. CASA ratio improved from 50.7 percent in December 2018 to 53.7 percent in December 19, which is the best in industry.
Overall, the asset quality remained resilient with the GNPA ratio at 2.46 percent in Q3FY20. The bank has no major exposure to IL&FS & other stressed assets. Going ahead, healthy business growth coupled with stable margins are expected to augur well for the bank.
Tata Consumer Products (erstwhile Tata Global Beverages):
Tata Consumer Products (TCPL), earlier known as Tata Global Beverages, commands 20 percent market share in the Indian tea segment. It expects to continue to grow above industry led by new launches and focus on premium tea varieties.
The branded tea business has delivered robust volume growth of 8 percent in 9MFY20 driven by market share gains, inorganic growth, product innovation and focus on premiumisation.
Trent, a leading retailer with presence across various consumer categories is gearing up for rapid growth driven by aggressive
store addition. Trent’s flagship store format ‘Westside’ generates one of the highest gross margins in the industry (~56%).
Over the last three quarters, the company has recorded 30%+ revenue growth on the back of aggressive store addition pace, coupled with healthy SSSG. The revenue trajectory is expected to be lower in Q4FY20, Q1FY21 owing to temporary store closures due to Covid-19.
However, we expect a gradual pick-up in H2FY21. Over the last two years, Trent had aggressively shored up its store addition pace with capital infusion by the promoters (| 950 crore). Higher promoter commitment signifies positive momentum in core business performance metrics.
Expert: Amit Gupta, Co-Founder & CEO, TradingBells.
We are expecting the FMCG sector to outperform where it is the leader of the industry which has strong feet on both rural and urban markets. Despite the high base, it manages to witness decent volume growth amid slow down in the economy.
Dabur is another counter which is witnessing decent volume growth where it has strong penetration in the rural market where after a recent correction there is valuation comfort as well in this stock.
ITC is one of the top the underperformer in the FMCG pack which is looking very attractive at current valuation because the downside looks very limited with the opportunity of both capital appreciation and decent dividend income.
The stock has corrected significantly from the top which is giving a valuation comfort in this counter because it still has strong growth prospects as the company has strong brand value and it is coming with new product mix to compete with Patanjali's Dant Kanti.
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