COVID-19 continues to remain the top directional force for the market across the globe. As the world tries to wade through the medical and economic crisis, uncertainty looms large on the markets.
Experts continue to warn that the market will keep oscillating between rise and fall and one must remain cautious while taking a call for trade.
"Sustainability of a rise in the market would be difficult at a higher level so traders should not go overboard and continue with the stock-specific trading approach. Among the sectors, we’re seeing consistent buying interest in defensive viz. pharma, FMCG and select IT and we suggest preferring these sectors over others for long trades while the underperformance may continue from the banking, financials and metal pack," said Ajit Mishra, VP - Research, Religare Broking.
While the market stares at an uncertain tomorrow, analysts advise going stock-specific to reap gains.
Here are 12 buy recommendations for one year that, as per some analysts and brokerages, can give healthy gains.
Analyst: Vinod Nair, Head of Research at Geojit Financial Service
HDFC Bank | Buy | Target price: Rs 1,134
Recent Q4 numbers showed an increase in deposits and an overall improvement in net interest margins (NIMs) for the bank.
Even though there has been a decline in new loans, robust network and strong asset quality will pave way for better growth in the long term.
Near-term concerns like exposure to unsecured loans given the on-going economic trouble seem priced in.
MSME exposure for HDFC stands at 13 percent and current alteration in IBC code to have a sentimental negative impact in the banking sector.
"We value the stock at 2.7 times FY22E BVPS with a revised target price of Rs 1,134 and recommend a buy," said the analyst.
Asian Paints | Buy | Target price: Rs 1927
With largely domestic-oriented business, the company has displayed resilience by giving double-digit volume growth despite a challenging environment.
Tailwinds on raw material cost due to the sharp fall in crude oil prices will aid for significant expansion in gross margins. Companies are likely to pass the benefit to customers to set the brush for a revival in demand.
"We expect the impact of COVID-19 on demand can mitigate through the benefit from lower raw material prices. Strong balance sheet and debt-free status will support premium valuation," said the analyst.
Mahnagar Gas (MGL) | Buy | Target price: Rs 1,126
MGL is Mumbai's sole distributor of gas, an essential commodity, the demand for which will be relatively less impacted by the COVID-19 scenario.
The demand for gas is set to pick up drastically in the country, with the government encouraging the use of clean fuels and reduce pollution levels in the country.
"The recent decline in natural gas prices will lower costs and expand margins going forward. We value the company at 13 times FY22E EPS with a target price of Rs 1,126 and recommend a buy rating," said the analyst.
Pidilite | Buy | Target price: Rs 1,626
The Monopoly the company enjoys in the adhesive sector (70 percent market share) along with its strong financials will help the company withstand the COVID-19 impact on the economy.
Pidilite has a strong balance sheet with almost zero debt and has maintained an average ROE of 27 percent in the last five years, justifying its premium valuation.
"The recent reduction in oil prices will enable the company to lower costs and improve margins in the future. We value the company at 49 times FY22E EPS with a target price of Rs 1,626 and recommend a buy," said the analyst.
Brokerage: Anand Rathi Shares & Stock Brokers
Mphasis | Buy | Target price: Rs 970
Direct International deal wins continue to climb over the last six quarters, suggesting strong execution (deals of more than $25 million, up 50 percent YoY in Q4).
The stock trades at 13 times FY22e EPS of Rs 60.4. This, the brokerage thinks, is attractive, considering Mphasis’ higher exposure to BFSI (where it is seeing strong momentum) and limited exposure to the troubled Aerospace and Hospitality sectors.
"While the slowing DXC is a concern, direct business growth should offset (at least, partly) the DXC slowdown as suggested by TCV data. Also, we see DXC as a manageable risk for Mphasis, given that cash balances can be used for tuck-in acquisitions when needed," said the brokerage.
ICICI Lombard General Insurance Company | Buy | Target price: Rs 1,340
"We have incorporated the latest quarterly numbers for ICICIGI and have revised our estimates for the company. Given ICICIGI's continued premium growth in preferred segments (fire, marine, motor, liability and health), consistent efforts on driving retail business and management's expectations of maintaining ROE of 20 percent, we continue to remain positive on the company for medium-term with a target price of Rs 1,340 per share," said the brokerage.
Hindustan Unilever | Buy | Target price: Rs 2,422
Over the past several years, HUL has exhibited a decent track record in terms of revenue and margin growth.
Monsoon is expected to be good during the year. This will aid the volume growth to some extent. In order to address liquidity challenges at wholesale as well as retail level, and to support volume growth, the company will take some price cuts in the current quarter.
In addition to this, the festive season is likely to give some relief to the slowing demand. If there is a revival in demand, HUL will be the key beneficiary.
"While current macro-economic conditions are likely to keep subdued demand in the near term, we remain optimistic that the company will outgrow the industry. HUL is the largest FMCG Company with one of the largest footprints in terms of products and distribution networks and its strategy to target volume growth, should drive healthy growth in the medium to long term," said the brokerage.
Dr. Reddy’s Laboratories | Buy | Target price: 4,382
Apart from a strong product profile, the company benefits from a diverse geographic presence. Geography-wise, North America constituted 39 percent of FY19 revenues, emerging markets contributed 27 percent while India and Europe accounted for 17 percent and 7 percent of revenues, respectively.
In line with its strategy to boost India's business, recently, the company inked a deal with Wockhardt to acquire select divisions of its branded generics business in India and a few other international territories of Nepal, Sri Lanka, Bhutan and Maldives for Rs 1,850 crore. The deal comprises a business portfolio of 62 brands in multiple therapies and is expected to close by Q1FY21.
The brokerage is of the view that the company should continue to witnesses strong growth in India, emerging markets, Europe and PSAI business driven by volume growth, new launches and improving realizations.
Analyst: Jyoti Roy, DVP Equity Strategist, Angel Broking
Colgate Palmolive | Buy | Target price: Rs 1,772
Colgate is a leader in the dental care segment in India with over 50 percent market share. The analyst believes that the company should ultimately be able to see sharper market share gain in kinds of toothpaste segment on the back of higher ad-spend and re-launch of Colgate Strong Teeth.
Ipca Labs | Buy | Target price: Rs 1,900
The company derives 54 percent of its revenues from domestic generic and API business. Generics and API continue to provide revenue growth for Ipca.
"We expect the company to outperform the Indian Pharmaceutical market(IPM) by 8-10 percent per annum over the next few years," said the analyst.
PI Industries | Buy | Target price: Rs 1,784
PI Industries is a leading player in providing custom synthesis and manufacturing solutions (CSM) to global agrochemical players. The CSM business accounted for 66 percent of the company’s revenues in FY19 and is expected to be the key growth driver for the company in the future.
Reliance Industries | Buy | Target price: Rs 2,364
Reliance Industries is India’s largest company with a dominant presence in refining, petrochemicals, telecom and retail businesses.
Telecom and retail business will be the key growth drivers for the company over the next few years while deleveraging of balance-sheet from stake sale in JIO Platforms and rights issue will drive rerating for the company.
Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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