After hitting record high on October 19, during the last four months, Indian equities have corrected sharply by about 11 percent followed by some recovery, but largely remained rangebound and volatile. In January, market made a failed attempt to scale fresh highs.
Currently, Nifty 50 is about 7 percent away from its record high of 18,604 touched on October 19, 2021. Analysts expect the 50-share index to hit 20,000-mark by December 2022 end.
High valuations, slowdown in rural segment, expectations of faster Fed tightening, FII selling and geopolitical tensions between Ukraine and Russia among other factors can be blamed for this sharp correction.
However, experts feel this correction also provides investors an opportunity to pick quality stocks as valuations have now turned attractive and the economy is at the cusp of multi-year growth path along with strong earnings growth ahead.
Further, the recent management commentaries after December quarter 2021 earnings also indicate healthy growth in FY23, though there was marginal pressure due to higher input cost in Q3FY22. Economy is expected to grow at 9.2 percent in FY22 and 7.8 percent in FY23.
"Indian economy has seen slowing down over the last decade of 2010-2020 but is now on the cusp of a multi-year high growth path. And this will give rise to the opportunity for larger gains in multiple themes," says Shailendra Kumar, CIO at Narnolia Financial Services.
Going forward, ICICI Securities expects Nifty EPS to grow at 21.5 percent CAGR in FY21-24. "Hence, we value Nifty at 20,000 i.e. 23x P/E (price-to-earnings) on FY23-24 average EPS of Rs 870 per share." Likewise, the brokerage expects BSE Sensex to hit 66,000-mark, offering healthy double digit upside.
Here are eight stocks where analysts recently initiated buy call with 23-62 percent return:
Aditya Birla Sun Life AMC: Buy | Return: 41 percent
"Aditya Birla Capital journey to drive consolidated return ratios closer to franchise potential over the next three years is on track across businesses. ABCL is steadily repositioning its lending business mix towards retail and granular loans, which is gradually reflecting in a sustained improvement in franchise earnings," says HDFC Securities.
The brokerage further says the insurance businesses are steadily building their profitability trajectory - the LI business, despite soft growth, witnessed better net VNB (value of new business) margins at 11.2 percent while the health insurance business remains on track to break even over the next couple of quarters.
The brokerage maintained buy on Aditya Birla Capital with a revised SOTP-based target of Rs 157 and initiated coverage on Aditya Birla Sun Life AMC with a target price of Rs 720.
Paytm: Buy | Return: 62 percent
"One 97 Communications' (Paytm) two-sided digital ecosystem of 64.4 million average monthly transacting users (MTUs) (as at December 2021) from more than 350 million consumer base and over 24.9 million merchants is core to its unit economics. Estimating that it currently generates revenue of Rs 350-375 per MTU and Rs 1,000-1,100 per merchant and incurs direct cost (of acquisition and transaction) of Rs 250-275 per MTU and Rs 750-775 per merchant, we derive customer lifetime value of Rs 2,000 per MTU and Rs 29,600 per merchant," says ICICI Securities.
The brokerage further says superimposing this on FY24E estimated MTU and merchant base and adjusting further for fixed cost, net cash and value of associates/subsidiaries, they arrive at Paytm’s intrinsic business value of Rs 94,000 crore (Rs 1,352 per share). "We initiate coverage on the stock with buy rating. Key risks being below expected monetisation through financial services business and unfavourable regulatory outcomes."
Go Fashion (India): Buy | Return: 37 percent
Go Fashion has the first-mover advantage by launching the first exclusive bottomwear brand ‘Go Colors’ in a highly fragmented bottom-wear category. ICICI Securities believes the brand has been able to create a replicable template of diverse product portfolio (>50 styles in >120 colours) along with a highly efficient (highest sales per square feet among peers) operating model of exclusive brand outlets (EBOs) with pan-India presence (476 stores across 120 cities) which will potentially drive growth in medium term.
"Further, continued success in the new products outside of core products (churidars and leggings) is key for de-risking growth opportunities and scaling up e-commerce business," says the brokerage which initiated coverage with a buy rating with a DCF-based target price of Rs 1,300.
Hitachi Energy: Buy | Return: 34 percent
"With its fairly diversified business exposure across utilities, industry and transportation, Hitachi Energy affords a play on both cyclical and structural growth vectors. Competitive edge in EHV transmission (including HVDC), and sharper focus on high growth areas such as transportation, data centres and e-mobility segments offer upside to growth-return expectations," says Edelweiss Securities.
The brokerage has initiated coverage at buy with a target of Rs 4,150, valuing the stock at a PE (price to earnings) of 60x (at a 25 percent discount to ABB given lower TAM & industry coverage limited to electrification.
CG Power and Industrial Solutions: Buy | Return: 30 percent
"Led by its new owners, CG Power & Industrial Solutions (CG Power) is executing a comprehensive strategy to regain its competitive profile across power/industrial products, wherein the bulk of revenue reflects its pole position. Cyclical tailwinds, expansive TAM and robust leadership offer growth comfort," says Edelweiss Securities.
The brokerage further says CG Power's massive re-rating over the past 12 months reflects renewed investor confidence under a robust new leadership. "Taking cognisance of multiple long-term drivers and the company's value creation initiatives, we are initiating coverage at ‘buy’ with a SoTP derived target price of Rs 229. Execution of product strategies, capital allocation and legacy issues remain the key variables to watch out for."
Tata Consumer Products: Buy | Return: 23 percent
Tata Consumer Products has outperformed the Nifty 50 Index and the Nifty FMCG Index by 8 percent and 17 percent respectively in the past year. Elara Securities initiated on Tata Consumer Products with a buy rating and a target of Rs 882.
"Our target price is based on SOTP valuation, 64x/53x FY23E/FY24E implied P/E. We assign 55x P/E to the India branded business, 2x Price/Sales to the international beverages business and 7x Price/Sales to the Starbucks business. Upside risk is higher-than-estimated revenue growth and downside risk is lower-than-estimated EBITDA margin," says the brokerage.
Mrs Bectors Food Specialities: Buy | Return: 37 percent
Mrs Bectors Food Specialities has underperformed the Nifty FMCG and the Nifty 50 indices in the past year as the stock has corrected by 13 percent. Elara Securities initiated on Bectors with a buy rating and a target price of Rs 460.
"We assign 30x P/E (at a 40 percent discount to Britannia's target multiple of 48x) FY24E EPS of Rs 15.3. Key upside risk is higher-than-estimated revenue growth and key downside risk is lower-than-estimated EBITDA margin," says the brokerage.
Lancer Container Lines: Buy | Return: 40 percent
"Lancer's revenue growth will be driven by capacity addition and expansion into new geographies over the next couple of years. The Lancer stock currently trades at an attractive forward P/E level of 15.6x FY24E EPS. Assigning a target multiple of 20.0x FY24E EPS, our valuation generates a price target of Rs 306, as we initiate coverage on Lancer with a buy rating," says Khambatta Securities.
Lancer operates an asset-light business with a mix of 10,000 owned and leased containers, offering services to 74 ports as well as inland destinations through 14 offices in India and a subsidiary in Dubai, covering more than 30 countries.
Lancer plans to expand its container fleet by 25-30 percent (2,500 to 3,000 TEU) by the end of FY22. "We believe container freight rates are going to remain at elevated levels over the next 12-18 months, driven by a slowdown in new-building orders in 2020 with the order growth in 2021 not leading to material commissioning of new capacities in the near term," says the brokerage.
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