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Last Updated : Apr 04, 2020 07:42 AM IST | Source: Moneycontrol.com

Lucky 7: HDFC Securities picks fundamentally strong stocks for your portfolio

In the interim we may see values dip sharply again and again based on over discounting of fundamental deterioration or technical reasons like large selling by FPIs due to risk aversion

 
 
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It is a difficult time for investors who might be seeing the value of their portfolios go down on a daily basis, but traders who trade both on the long and short side could have a gala time even if volatility index goes on a rollercoaster ride, HDFC Securities said in a report.

However, they must follow money management rules by keeping strict stop losses and try to square up the trade the same day as far as possible.

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“While we do not want to sound alarmist for the sake of it, we have tried to interpret the possibilities objectively. The long term fair value of most well-managed companies will not change materially based on lower earnings or cash flows of a few quarters,” said the report.

The report further added that in the interim we may see values dip sharply again and again based on over discounting of fundamental deterioration or technical reasons like large selling by FPIs due to risk aversion.

Hence, changing asset allocation, raising cash in the interim and redeploying later at lower levels (in same/different stocks based on a fresh evaluation) may help overcome the anxiety during deep selloffs (and its consequent impact on wealth effect).

The hard truth is that the ultimate winners out of this turmoil may not be the same as those in your current portfolio.

The three-week lockdown to contain the COVID-19 outbreak will mean that 75 percent of the economy will be shut down, resulting in a direct output loss of more than 4 percent.

On the charts, the Nifty50 has fallen from 12,152 to 7511 and on bounces the retracement levels could be 9270-9846. In the best-case scenario, it could rise to 10294.

“It could later fall again and in case we are able to contain the virus by April end (first scenario), then we could form a higher bottom at 7842-8160,” said the report.

It further added that in case the virus lingers on beyond this date (second scenario), then we could breach the low of 7511 and go towards 6825-6357.

HDFC Securities said that currently, they are not including any financials in their recommendations. Here are top 7 stocks from IT, consumption, oil & gas as well as from healthcare space:

HDFC Securities report

Apollo Hospitals Enterprises:



Apollo Hospital Enterprise Ltd (AHEL) is Asia’s one of the leading integrated healthcare service providers having presence in Hospital, Pharmaceutical, Primary Care & Diagnostic Clinics; Telemedicine units, Health Insurance Services, Global Projects Consultancy, Colleges of Nursing and Hospital Management and a Research Foundation, epidemiological studies, stem cell & genetic research.


This stock fallen over 25 percent in the last one month due to Corona Virus fears in India despite the fact that Hospital's business will be unaffected by the virus scare; if at all it may benefit out of it.


On account of increased pricing, better occupancy, and improved case mix, AHEL witnessed improvement in its hospital and pharmacy segment's profitability. Substantial debt-funded capex or acquisitions or inability to improve the EBITDA margins leading to the higher net adjusted leverage are some concerns




HPCL is an integrated refining and marketing company and has substantial oil marketing operations. It is the third-largest oil refining and marketing company in India. It owns and operates two refineries, one in Mumbai with a 7.5 million metric tonnes per annum (MMTPA) capacity and another one in Visakhapatnam with 8.3 MMTPA capacity.


Coronavirus outbreak has impacted industry demand and HPCL has to face volatility in oil prices. The stock has fallen by about 37 percent since Nov 2019 highs.


Crude oil prices have recently fallen to their lowest in nearly three months after the failed decision of production cut by OPEC nations, stoking fears about global economic growth. Trade tiff of the US with China has led to fears of further slowing down of the global economy which could impact crude oil demand and hence its prices.


The sharp drop in global crude prices in the last few weeks (correction in oil prices from ~US$45/bbl to US$22-25/bbl) provided respite to OMCs will allow the OMCs to raise margins.


Now onwards, normative margins could be restored allowing HPCL to be the largest beneficiary as its earnings are highly sensitive to changes in the marketing margins.




Hindustan Unilever Limited is engaged in fast-moving consumer goods businesses comprising home and personal care, foods and refreshments. The Company's segments are Soaps and Detergents, which include soaps, detergent bars, detergent powders, detergent liquids, and scourers.


HUL lost over 340 basis points to 38.9 percent in the skin cleansing category over the past two years dragged by a sharp decline in two of its largest brands— Lux and Lifebuoy — that together accounts for a quarter of the market.


The beauty care category was impacted by delayed winter for skincare and pricing correction in soaps, and the Personal wash market also declined in Q3. Rural demand has been weak due to lower-income, recovery in demand would take another two to three quarters.


However, HUL has undertaken various measures such as partnering with banks and financial partners and offering additional credit to wholesalers in rural markets to ease out liquidity concerns in trade channels.


Infosys: 

Infosys is a leading provider of consulting, technology, outsourcing, and next-generation digital services, enabling clients to execute strategies for their digital transformation. The company has a comprehensive list of clients of Fortune 500 companies across different verticals and across geographies.Infosys's business risk profile is supported by its leading market position, the large scale of operations with a skilled resource base of 2,43,454 employees (as on December 31, 2019), proven project execution skills, and strong offshore delivery capability.Revenue growth has been moderate at 10.4 percent, with constant currency growth of 9.7 percent during the first nine months of fiscal 2020, supported by total contract value of large deals (greater than USD 50 million) of USD 7.4 billion as on December 31, 2019.The continued strength in large deal wins despite a cautious environment and the revenue growth guidance upgrade indicates business as usual at Infosys despite the whistleblower related distractions. There were neither any negative client repercussions nor has the time taken for large deal sign-offs increased due to this episode.

ITC:

ITC is one of the leading FMCG companies and largest cigarette manufacturer and seller in India. ITC operates in five business segments at present —Cigarettes, FMCG, Hotels, Paperboards, Paper and Packaging, and Agri-Business. ITC is the market leader in the organized domestic cigarette industry, with a market share of over 80%.

ITC’s Cigarettes contributes ~46 percent to ITC’s segment revenue, followed by FMCG-Others at ~25 percent, agri-business at ~12 percent, paper and paperboards at ~9 percent and hotels at ~4 percent in FY19.

The stock has fallen 39 percent in the last two months due to a recent increase in NCC duty on cigarettes, price hike across various categories of cigarette and consumption slowdown in FMCG products.

Apart from this, COVID-19 impacted its hotel business due to lesser tourists and visitors' arrival in India. Cigarette volumes continued to see muted volume growth of 2-3 percent growth vs. ~10 percent volume growth of VST Industries.

SBI Life:

SBI Life (SBIL) is one of the leading Life Insurance companies in India. It is a joint venture between India’s largest bank State Bank of India and the leading global insurance company BNP Paribas Cardif.

Since FY10 SBIL has been the leader in terms of new business premium generated with a market share of 22.3 percent (+230bps since FY17) among private life insurers and 6.6 percent (+80bps since FY17) in the industry in 9MFY20.

It offers a comprehensive range of life insurance and pension products at competitive prices. It is the lowest cost life insurer with an operating cost to the premium ratio of 6.1 percent (9MFY20), ~200bps lower than the closest competitor.

Hindustan Zinc:

Hindustan Zinc is India’s largest and world’s second-largest zinc-lead miner with more than 50 years of operational experience. It is a subsidiary of Vedanta Limited which owns a 63.2% stake in the Company while the Government of India retains a 29.54 percent stake.

With a reserve base of 105.7 million MT with an average zinc-lead grade of 10.5 percent and mineral resources of 305.6 million MT, it has a mining life of over 25 years. HZL is among the Top 10 silver producers globally with an annual capacity of 600 MT.

The stock has corrected by ~35 percent in recent months as a slowdown in economic growth is likely to delay projects and curtail demand for the company’s products.

The prices of zinc, lead, and silver – key products of the company – have been on a correction mode in the last 1 year and with global slowdown they might correct further before moving up. This could severely impact the company’s profitability as global prices are not under its control and may also delay its expansion plans.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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First Published on Apr 4, 2020 07:39 am
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