India clocks in growth rate of 8.2% in Q1! These 5 economy-linked stocks could be winners

The Indian economy grew at 8.2 percent in the April-June quarter this year, which was ahead of market expectations. The economy grew despite the falling rupee and the growing concerns around a possible global trade war, and while the country's economy is recovering from twin shocks of demonetisation and the goods and services tax (GST).

With the economy on steroids, investors should use the momentum to get into economy-related stocks or stocks which are likely to witness upside momentum as the economy grows stronger.

“A stronger-than-expected GDP number will lift sentiment, and markets in a knee-jerk reaction. The data will, however, have to be dissected to know the components of the growth and the benefit to the listed companies thereafter,” Deepak Jasani, Head Retail Research at HDFC Securities told Moneycontrol.

“If investors are planning to invest in economy-related stocks then it would be important to see how sustainable the pickup in investment activity has been in the first quarter of 2018-19 after it rose by 14% in the last quarter of 2017-18,” he said.

Finance minister Arun Jaitley last week said that India is likely to overtake United Kingdom (GDP USD 2.622 trillion) as the fifth largest economy by next year.

The momentum is likely to continue in the coming quarters, albeit at a slower pace, amid elevated crude oil prices, rupee weakness, tighter financial market conditions and trade war woes.

“Data suggests that major growth contributor was the manufacturing sector which last year had a negative impact on the GDP as companies were reducing their inventory levels towards the preparation of GST,” Shekhar Bhandari, Sr. EVP & Business Head – Global Transaction Banking & Precious Metals, Kotak Mahindra Bank.

“The two major pillars of the economy, which are manufacturing and agriculture, are again showing green shoots of growth. While the contribution of manufacturing to GDP in future can move above 20%, the retaliatory tariffs imposed by countries leading to protectionism may impact manufacturing,” he said.

Here is a list of top 5 economy-related stocks which are likely to get benefit from the rise in economic activity:

Dr. Reddy’s Laboratories | Rating: Buy| LTP: Rs 2491

The company has reported robust first quarter FY19 results, aided by the launch of gSuboxone. According to the management of the company, it has focus on operational efficiencies which helped in significantly improving its margin profile.

In FY19, its priorities are driving productivity improvement, focusing on core therapeutic areas and big brands, and scaling up New Chemical Entity (NCE) launches done through the Amgen deal.

In the medium to long-term, management of the company wants to focus on ramping up of biosimilars through internal and partnered assets and building differentiated products in relevant therapies, accompanied by a further ramping up of the base business.

The management of the company expects 15-20 launches in FY19 and also expects emerging markets grew 16 percent YoY led by robust spurt in Russia and ROW.

Bajaj Auto | Rating: Buy | Target: Rs 2,746

The company has a diversified business model and a strong focus on the profitable growth, widening reach in export markets and strategic alliances with global majors.

The domestic 2-wheeler market would start growing from the festive season & would continue to grow for next couple of years. The management has assured that the company would see a very healthy top-line growth and a very healthy EBITDA increase in coming quarters.

FY 18-19 capex plan stands around Rs 250-300 crore. It would look to expand and strengthen the 150cc Pulsar segment in addition to pursuing new three-wheeler markets within India.

Its total current capacity is approximately about 6.6 million. 3-wheelers will be approximately about 7.2 lakh. The company expects 1.9 million export numbers for FY 19.

UPL | Rating: Buy | Target: Rs 714

The company has strong fundamentals and a robust outlook. Its strong focus on brand building and customer reach is helping the company in increasing its market share in major addressable markets.

Moreover, with the acquisition of Arysta LifeScience, the company will be one of the world's largest global crop protection companies, with an innovative and differentiated product portfolio.

The management has been focussing on technological enhancement and new product developments which would aid the further financial growth of the company. Moreover, the company believes new launches would bear fruit in the coming term.

The Indian Hotels Company | Rating: Buy | Target: Rs 136

The company plans to continue to grow through a judicious mixture of owned and leased hotels, a de-risked model along with its ability to attract management contracts.

Its command and long & successful track record in operating hotels for third-party owners would facilitate growth for the future.

Moreover, it has the ability to deliver improved returns on capital would be driven through product renovation, rigorous asset management, revenue maximization, cost control and reduced leverage and exit from non-core underperforming assets.

It has assigned a capex of Rs 3,000 crore for the next five years and hotel industry occupancy levels and average room rate (ARR) are showing upward trends due to a demand-supply gap.

PNB Housing Finance | Rating: Buy | LTP: Rs 1,359

The company has strong balance sheet and continue to register a strong double-digit growth in all of its business and financial sectors. Going forward, the company is likely to maintain the same on the back of healthy loan growth expectation and expansion in NIM.

It is also focusing on improving its assets quality, which would have a positive impact on the overall performance of the company. The AUM of the company surged 47 percent to Rs 68578 crore end June 2018 over June 2017.

The loan portfolio of the company increased 45 percent to Rs 63906 crore, while the loans sold outstanding increased 70 percent to Rs 4672 crore end June 2018 over June 2017. The disbursements increased 25 percent to Rs 9767 crore in the quarter ended June 2018.

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