The surge in coronavirus infections, an acrimonious buildup to US elections and geopolitical reasons will keep volatility high that can act as a spoilsport, say experts.
Markets have been witnessing strong bouts of volatility as, after a few sessions of gains, the equity benchmark Nifty corrects significantly to stay in the 11,000-11,500 range.
The volatility is expected to continue due to the surge in coronavirus infections, US elections and geopolitical reasons.
"With the US elections approaching in what will be a highly contested battle, there is a fair amount of volatility, which may act as a spoilsport," said Devang Mehta, Head–Equity Advisory at Centrum Wealth Management.
Locally, a significant deceleration in growth was likely as the surge in demand related to the reopening of the economy would fade. India-China tensions were another variable. Valuations, too, were looking a bit stretched in the absence of earnings growth, Mehta said.
However, liquidity may keep the market away from a bearish phase.
"Some bit of volatility and consolidation can happen. However, structurally, we may see decent liquidity for a good period of time," said Pankaj Pandey, Head of Research at ICICI Direct.
At times like these, buying on decline is be a better strategy with a defensive portfolio positioning, say experts.
Here are 10 stocks that you can add to your portfolio for healthy returns in the long-term (one-two years):
Analyst: Siddharth Khemka, Head – Retail Research, Motilal Oswal Financial Services
As per the analyst, the stock is in a sweet spot as strong rural-led recovery plays to its strength in the economy and executive category in the motorcycles segment.
"With an apt product portfolio for the rural market, the highest brand recall, and a strong distribution network, it is best placed to benefit from low penetration and ongoing momentum in the rural economy," Siddharth Khemka said.
The analyst pointed out that Hero Moto’s competitive positioning has improved in both the 100cc and 125cc categories after BS-6. This would enable further recovery in market share in FY21—signs of recovery are visible year-to-date.
"We believe Hero MotoCorp has multiple re-rating triggers, including the return of volume growth, a possible foothold in premium motorcycles, scooters and exports, and a speculated GST cut," the analyst said.
He expects Hero MotoCorp's EPS to grow at a 12 percent CAGR over FY20–23E.
Domestic and export supplies have both picked up, with all manufacturing facilities being operational and capacity utilisation rebuilding to pre-COVID-19 levels.
The analyst believes the company has levers in place to sustain growth momentum in the near-term, led by (a) its recently established two multi-purpose plants ramping-up operations, (b) revenue from the Isagro acquisition, (c) sustained growth momentum in the CSM business on account of a strong $1.5b order book, and (d) product launches in the domestic market (two-three annually) providing earnings visibility.
With the completion of Rs 2,000-crore QIP, the company is exploring inorganic acquisition opportunities in the pharma space, which would drive long-term growth.
"Considering a strong growth outlook in the existing business and its venture into the pharma segment, we expect a revenue/EBITDA/PAT CAGR of 30 percent/38 percent/49 percent over FY20–22E," the analyst said.
"We like HCL Tech, given its robust business model, high return ratios, strong management team, and a reasonable valuation," the analyst said.
HCL Technologies has announced its intent to acquire DWS Limited, a leading Australian IT, business and management consulting group for nearly Rs 850 crore.
The acquisition should enhance HCL Tech’s contribution to digital initiatives in Australia and New Zealand and also strengthen its client portfolio across key industries, the analyst said.
The company’s exposure to deeply troubled verticals (eg energy, travel, transportation, hospitality and retail) is lower against peers.
Higher exposure to IMS (nearly 37 percent of revenue), comprising a larger share of nondiscretionary spend, offers better resilience to its portfolio in the current context.
"We expect HCL Tech to better navigate the current crisis and emerge stronger due to an expected increase in enterprise demand for digital services. Our confidence partly stems from the company’s historical track record of adapting to multiple business challenges and technology change cycles," said the analyst.
Alkem Laboratories exhibited strong traction in the US generics and significant savings on OPEX in Q1FY21, which more than offset the YoY decline in domestic formulation (DF) sales, resulting in record-high quarterly earnings.
The pandemic has showcased strong brand recall for Alkem’s products in the DF segment and superior execution in US generics.
The analyst expects 24 percent earnings CAGR over FY20-22E, led by 16 percent/8 percent sales CAGR in the US/DF generics on new launches and better traction in existing products.
The reduced promotional expense in DF and improving profitability in the US should drive 520bp margin expansion over FY20-22E.
Analyst: Vikas Jain, Senior Research Analyst at Reliance Securities
The company remains beneficiary of being an emerging duopoly with a large subscriber base and expected regular price hikes.
Higher data consumption with respect to work-from-home (WFH), digital payments, OTT platforms and lesser Capex requirement in the near future are the key positives for the stock.
The sharp correction of 25 percent over the last month offers a strong risk-reward from current levels and would scale to all-time high levels over the next few years.
The growth prospects of HDFC remain strong on the back of strong parentage, large balance sheet to raise and deploy money regularly, increased housing demand.
Increasing credit by the bank's subsidiary provides an opportunity for further penetration of the client base and stable margins to deliver consistent growth in earnings and valuations.
ICICI Bank is well-positioned to deliver strong business momentum with advances growth of 17 percent, a consistent margin of 3 percent and better asset quality to aid return ratios.
The stock trades at 1.8 times FY22E adjusted book value below the long-term average and price correction of 30 percent is providing comfort at the current levels.
Analyst: Siddharth Sedani, Vice President-Equity Advisory, Anand Rathi Shares and Stock Brokers
KEC has been at the forefront of expanding internationally, thereby mitigating geographic-concentration risks.
With its strong order book and healthy L1 orders, KEC’s growth prospects are sound. Promising prospects are being seen in the railways and civil businesses.
However, the pace of execution and order inflow would be key points to monitor. A significant international scale-up for various businesses has started paying off well, with the company seeing robust order inflows from various regions.
"We roll forward our estimates to FY23, forecasting 12 percent/17 percent revenue/PAT growth YoY and a 10.2 percent EBITDA margin," said the analyst.
UPL is one of the top 5 crop-protection product companies worldwide, expanding footprint in Africa, Russia, and Eastern Europe.
UPL currently has 48 manufacturing facilities across the world and a presence in more than 130 countries.
For FY21, management sees continued growth in revenue and EBITDA and expects to reduce fixed costs.
The current environment remains challenging, however, the farm sector’s growth prospects look positive as governments around the world remain focused on food security with stable agricultural production.
"We believe UPL remains well-positioned for long-term growth, given its, strong market position, diverse product offering, expectations of reduced debt levels and decent revenue and cost synergies from Arysta acquisition," said the analyst.
Balkrishna’s growth prospects remain strong, led by robust demand in the agricultural sector in both Europe and the US. Also, FY21 would have margin expansion on account of backward-integration benefits from the carbon black plant.
Management is upbeat about demand from the agricultural sector in the US and Europe, which would be key drivers for FY21.
"Against the backdrop of volume growth and backward integration benefits, we expect the margin to expand 150bps in FY21. Also, we expect it to improve in FY22 driven by volume leverage and revenue from carbon black," said the analyst.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.