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Market off record high: Analysts pick these top 10 stocks for 16-53% returns

Foreign money is clearly the key driver of the rally, along with improving macroeconomic data, better-than-expected September quarter earnings, and hopes that a COVID-19 vaccine is around the corner

November 26, 2020 / 09:50 AM IST
 
 
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After a stellar run for almost 2 weeks, the benchmark indices saw selling pressure on November 25 as investors and traders booked profit. Experts say they are not worried about this fall as generally it makes bulls stronger to march further.

The benchmark indices corrected 1.5 percent each on November 25 after hitting a fresh record high in morning trade with the Nifty crossing the 13,100-levels intraday.

The consolidation was on expected lines after a rally of more than 70 percent each on Nifty and Sensex from March lows. The indices had rallied over 10 percent in the previous 14 sessions.

Foreign money is clearly the key driver of the rally, along with improving macroeconomic data, better-than-expected September quarter earnings, and hopes that a COVID-19 vaccine is around the corner.

"Declining dollar index is pushing FII flows and India is a major recipient of this huge capital flows. In November, till date, FIIs have invested a record Rs 55,553 crore in India. This frenzied buying is unprecedented. Even though lots of justifications - economic, political & policy-related- can be given for this massive global rally, the fact is that this rally is predominantly liquidity-driven. Mid-caps are likely to rise further," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.

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"Valuations are rich and in many cases approaching bubble territory," he said.

Hence, experts expect some more correction and volatility in coming days, but they feel the correction is not going to change earnings expectations and economic growth parameters unless any big risk arises again.

Given the expected growth in several sectors, especially after September quarter earnings and improving economic growth, brokerages have initiated coverage on several stocks in last one month.

Here is a list of 10 stocks where analysts initiated coverage with a buy rating in last one month:

UTI Asset Management Company

JM Financial initiated coverage on UTI Asset Management Company with a buy rating and target price of Rs 700. The brokerage believes UTI AMC's strong brand recognition and retail presence, continued improvement in equity fund performance and expected improvement in profitability driven by costs moderation makes it one of the preferred plays to capitalise on the financial savings opportunity in the country.

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Sudarshan Chemical

Company plans to become the third-largest pigment manufacturer globally by developing R&D capabilities, operational efficacy, and expanding to new geographies. Global scale is the key to success in the pigment business, said HDFC Securities.

"Two major global players shifting away from the pigment business could act as a tailwind for Indian pigment manufacturers. We believe SCIL is in a sweet spot to seize this opportunity by offering products similar to those of global players. We initiate coverage on the stock with a buy recommendation," said the brokerage.

AU Small Finance Bank

Sharekhan initiated coverage on AU Small Finance Bank (AUSFB) and found it an attractive player operating in a niche space, having strong metrics and a promising long-term outlook.

"The bank caters to the niche below-radar borrower segment (low competition andblue sky growth potential), has stable NIMs, and well-maintained asset quality," the brokerage said.

Salzer Electronics

"SEL registered a strong bounce-back in Q2 FY21 from the COVID-led slowdown in Q1 FY21. Going forward, management expects steady performance through the remainder of FY21. We have modelled resumption of growth in FY22 with margin improvement driven by expanding export revenues, better product mix and cost reduction. The company continues to focus on improving its working capital management, which will positively affect short-term borrowing requirement and consequently interest expense and cash flow," said Khambatta Securities.

"Expecting improvements in return ratios and solid earnings growth in FY22, we value SEL at 8.0x FY22E EPS with a price target of Rs 162, informing a buy rating," the brokerage added.

Sharda Motor Industries

"SMIL is a leading auto-ancillary company supplying exhaust and suspension systems to major OEMs. The company is well placed to be benefited from implementation of BS VI emission norms which rolled out from April 01, 2020. Further, the JV with Eberspaecher for production of exhaust systems for commercial vehicles is likely to drive the business. This debt-free company holds substantial cash; has healthy return ratios & strong growth prospects," said Sushil Finance.

Going forward, the brokerage expects company to witness value driven growth and rise in profitability on account of contributions from JV. It further expects SMIL to deliver an EPS of Rs 155.9 in FY23; assigning a target multiple of 12x we arrive at a target price of Rs 1,871 with an investment horizon of 18-24 months.

V-Mart Retail

"V-Mart a leading value fashion retailer in UP & Bihar market (56 percent of store foot-print) is well-poised to capture the significant growth potential in tier 2-4 cities with aggressive store openings. V-Mart's ethos of prudence and agility, proactive costs, cash flows and vendor management during COVID, cluster-based approach of store expansions and debt free BS provides the necessary ammunition to tap the large addressable market opportunities," Dolat Capital said.

"V-Mart has aced the brick-and-mortar value fashion business with its execution prowess. It excels on sourcing, logistics and assortment. It is among the few to have profitably mastered the game via its 'better fashion at better value' OR 'Price "less" fashion' concept has created a virtuous loop. V-Mart's business strategy of keeping the ASP and gross/EBITDA margin fairly stable and pass-on the efficiencies at company/vendor level to consumers results in a formidable moat," the brokerage added.

Alkem Labs

HDFC Securities initiated coverage on Alkem with a buy based on the following factors: (a) recovery in acute therapies is likely to benefit Alkem the most, given its dominant position in the segment (rank 1 in Anti-infective, rank 3 in Gastro, rank 3 in Vitamins); (b) steady market share gains in chronic (+50bps over the past five years) will contribute to higher growth and profitability; (c) rising scale in US generics ($300 million, growing at double digit CAGR) will contribute around 20 percent to FY23 EBITDA versus single digit in FY20.

Heidelberg Cement

Axis Securities initiated coverage on Heidelberg Cement India (HCIL) with a buy recommendation and a target price of Rs 230.

Recently the company expanded its capacity to 6.26 mntpa from 5.4 mntpa through de-bottlenecking process which will take care of volume and revenue growth for the company for the next two years thereby enhancing revenue visibility. The company reported decent Q2FY21 results due to higher realization and controlled costs while the revenue and volume was down marginally on YoY basis.

"With the capacity expansion, presence in relatively better placed Central region, better monitoring of cost drivers and increased realization, HCIL is expected to report Revenue, EBITDA and adjusted PAT CAGR of 8 percent, 14 percent and 19 percent respectively between FY20-FY23 driven by volume CAGR of 6.2 percent and improvement in realization CAGR of 2 percent between FY20-FY23. We see strong re-rating potential on the back of healthy growth," said the brokerage.

Mphasis

"Order intake continues to be strong with company reporting net new wins of $360 million in Q2FY21 (versus $259 million QoQ/$ 174 million), marking the 3rd quarter in a row of over $200 million TCV bookings and providing confidence in growth momentum sustaining in the Direct business," JM Financial said.

"Company remains confident of its prospects citing strong pipeline (+75 percent YoY) and success at client mining which has reflected in strong client metrics performance and benefit at vendor consolidation exercises in recent past. We find valuations cheap on a relative basis at 18x FY21E P/E given solid growth momentum in the direct business and predictable margin profile," the brokerage added.

Shree Digvijay Cement

"Company has been unique trendsetter in providing superior quality of ordinary & special Portland cement. Company has high growth potential in cement sector backed by: 1) Strong Brand image; 2) Monopoly in oil well cement brand 3) Better operational efficiency 4) Good Management team," said Arihant Capital Markets.

The brokerage estimated SDCCL topline to grow at a CAGR of 10.6 percent over the period of FY20-22 backed by improved realization with increase in demand for cement as infrastructure and construction activity starts picking up. "Moreover low raw material cost and better operational efficiency will aid margin improvement going ahead."

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Nov 26, 2020 09:34 am

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