Barring occasional time-offs, the Indian equity benchmarks have been rising since March 2020 even as the economic outlook of the country remains gloomy.
Since the March lows of 7,511, the Nifty is up about 54 percent as of August 26 close, registering an almost V-shape recovery.
FII inflows, liquidity infusion by central banks and governments and better-than-expected June quarter earnings kept the market up. Hopes of quicker recovery from COVID-19 and optimism over progress in coronavirus vaccine, too, contributed to the rise in the market.
Experts now feel the next leg of the rally will be driven by banking stocks while the positive outlook on rural economy and resilient sectors like IT, pharma and private banks will support the sentiment and may lead the market to record highs.
"Indian markets have been buoyant tracking healthy FII inflows, the pace of economic recovery and hopes of quicker COVID-19 recovery based on progress made by the medical fraternity on development of a vaccine.
While the market has almost chartered V-shaped recovery from March lows, the next leg is likely to be driven by banking wherein, we believe, most of the negatives are priced in," said Pankaj Pandey, Head–Research, ICICI direct.
"We also remain positive on the rural economy and resilient sectors like IT, pharma and private banks. Therefore, we believe the market can move towards previous all-time highs in the medium term," Pandey
While the market has rallied smartly, the rally has been highly concentrated, with the top 15 stocks contributing over 70 percent of the returns.
Valuations are challenging and stock-picking is the key.
Here are 8 blue-chip stocks that analysts find attractive for a one-year timeframe:
Analyst: Pankaj Pandey, Head – Research, ICICI direct
HDFC Bank | Target price: Rs 1,320
Exposure to better rated corporate and salaried segments in the retail category provides comfort on moratorium, which is in single digit at 9 percent. So, asset quality is expected to remain prudent with below 2 percent ahead, the analyst said.
The successor of the current managing director being an internal candidate with long tenure in the bank provides comfort. Given the right asset mix and high provision cover, the premium valuation will persist ahead, the analyst said.
Infosys | Target price: Rs 1,000
Infosys has shown visible improvement in performance since the change in management. The analyst expects the company to continue to make steady improvements in financials in the coming quarters.
Digital acceleration, large deal wins, vendor consolidation and cost rationalisation remain key long-term drivers.
The IT major has maintained healthy cash flow generation and consistent dividend yield. It has also narrowed the margin gap with TCS, the industry leader.
Dr. Reddy's Labs | Target price: Rs 5,000
The analyst expects a continuum in operational improvement due to strong growth from branded markets, control over overheads and reduction in regulatory spending, now that most facilities are out of the USFDA embargo.
"We draw comfort from the management commentary, especially their endeavour to focus on simultaneous launches across geographies and segments besides continued efforts towards controlling SG&A expenses," the analyst said.
Bharti Airtel | Target price: Rs 700
With robust performance amid challenging times, Airtel is one of the better-placed telecom players.
"We see the favourable industry structure of three players (two being strong), a good enough kicker for an eventual hike in tariff as well as superior digital play in the long-term," said the analyst.
Current valuations underestimate the massive possibility of growth in a consolidated market and the resilience shown by Airtel so far, it added.
Analyst: Neeraj Chadawar, Head-Quantitative Equity research, Axis Securities
HCL Tech | Target price: 800
HCL Technologies products, services and engineering are built on strong innovation, making a more sustainable business model even in time of uncertainty.
The recent deal trend continues to be healthy and is reflective of HCL's traction in retail and CPG, manufacturing and BFSI verticals.
"We believe that the COVID outbreak will create huge opportunity across geographies for HCL Tech to post strong organic growth over different verticals," the analyst said.
Better business matrix and large long-term contracts make HCL Tech a promising investment as compared to its Indian peers.
"We believe HCL has a resilient business structure from a long-term perspective. We recommend a 'buy' and assign 13 times P/E multiple to its FY22E earnings of Rs 50.3," the analyst said.
ITC | Target price: Rs 230
The company's FMCG segment growth was much ahead of FMCG peers as ITC's staples, convenience foods and health and hygiene divisions recorded a robust 34 percent surge in a tough quarter.
Demand for July was healthy given a resilient portfolio supported by a rise in ‘at-home’, a tailwind that can sustain in the near to medium-term.
While Q1FY21 was impacted by lockdown, momentum recorded in June has sustained in July with operations reaching pre-COVID levels and distribution and supply chain also catching up faster than expected.
"With competition plants closed for a large part of Q1 and innovative product offerings, we expect ITC to grow its volume share in the core cigarette business," said the analyst.
"Compelling valuations (15 times FY22E EPS) with modest earnings growth visibility, more than 5 percent dividend yield to sustain, strong and cash-rich balance sheet and likely market share gains in core cigarette business supported by inorganic acquisitions are key triggers for upsides in the stock," said the analyst.
State Bank of India | Target price: 240
Unlike other PSBs, SBI’s large balance sheet and recovery prospects are comparable to those of large private peers.
Despite competition from peers, SBI’s CASA franchise is at 45 percent of deposits, better than that of some large private banks.
The analyst expects net interest margin to be stable at nearly 3 percent over FY21/22E.
"SBI is currently trading at 1 time its FY22E book value, which we believe are attractive. Among PSU banks, SBI remains the best play on the gradual recovery in the Indian economy, with a healthy PCR, robust capitalisation, a strong liability franchise and improved core operating profitability," said the analyst.
ICICI Bank | Target price: 480
"We maintain our positive view on ICICI Bank and believe it offers the best risk-reward among our bank coverage given a healthy, sustainable earnings outlook," said the analyst.
Asset quality is likely to strengthen following large NPA (non-performing assets) recognition in the past. A strong liability profile, better asset mix, and healthy CAR could make ICICI Bank well-positioned to come through this challenging period with a relatively lower degree of stress.
The analyst expects higher provisioning over FY21/22E cushioned by stable NIM, low cost of funds and healthy capital adequacy.
Proposed capital raising plans are to strengthening capital positioning and the competitive landscape.
"We believe valuations are undemanding for the stock, given strong liability franchise and leveraging opportunities across group products," said the analyst.Disclaimer: The views and investment tips expressed by 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.