Axis Capital also said the key to the virtuous cycle is strong public investment push over the next two years without any speed breakers like demonetisation, which can propel Nifty to 15,000
As Narendra Modi takes oath for Prime Minister's office today on May 30 in Rashtrapati Bhavan, market participants are eying his policy decisions and steps that he will take in his second term.
Resolution to the liquidity crisis, increase infrastructure spending, job creation on large scale, agricultural reforms, more simplification of GST, etc. are some of the key expectations from NDA government.
If all works out well in coming quarters, then strong earnings growth could happen and then there could be a far bigger rally in mid and smallcaps than largecaps, experts said.
"We believe a broad-based rally in the stock market is likely for the next 2-3 years. Most of the measures undertaken by the NDA government in the past five years was for building the foundations for long-term growth through the cleansing exercise, implementation of key policies like GST and others. Now, a host of other measures announced in their election manifesto is likely to boost stock market returns," Stewart & Mackertich said.
According to the brokerage, fast policy economic policy decisions and reforms, implementation of projects, transmission of earlier reforms are likely to boost employment, productivity and growth in the country.
"We are likely to see the beginning of a new virtuous cycle of improved sentiments, increase in private and public capex, job growth, productivity, savings and consumption," it further said.
Axis Capital also said the key to the virtuous cycle is strong public investment push over the next two years without any speed breakers like demonetisation, which can propel Nifty to 15,000. If not, we see markets hovering closer to mid-cycle valuations with Nifty at 12,400, it added.
The brokerage said NDA-2 is all about construction, not credit push, which it believes will be a far bigger multiplier for the economy.
"Higher investment-led growth will lead to an upward shift in trend growth. With GDP growth surprises, foreign capital flows will accelerate taking market multiples higher. By the end of Modi's second tenure, India’s economy will be $4 trillion plus with a savings pool of over $1 trillion."
Hence, brokerages advise a mix of large, mid and smallcaps that could offer double-digit returns in coming quarters:
Brokerage: Stewart & Mackertich
Ashok Leyland is scaling up its non-truck businesses to mitigate the impact of business cyclicality and earnings volatility. These businesses include spare parts, exports, LCV, defence and power solutions. Currently, these businesses contribute approximately 12 percent of the standalone revenue and the target is to increase this to 50 percent going forward.
It has 50 percent market share in the high tonnage segment whereas it has 32 percent market share in the overall M&HCV segment. The growth in the high tonnage segment is outpacing the whole CV industry mainly due to the implementation of GST.
Considering huge capex plans for the next two years by oil PSUs, we believe Engineers India (EIL) will benefit greatly.
Cigarette taxes on a per kilogram basis of tobacco consumption are 55 times higher than other tobacco products consumed in India. Taxes consume nearly 55 percent of the revenue earned from tobacco. India falls under the country with the highest tax bracket for the cigarettes. We expect a relaxation of the tax and FDI norms towards cigarettes from the pro-business incumbent government.
FY19 order inflow grew 15.6 percent YoY to Rs 1.8 trillion and order backlog as on March 2019 was Rs 2.9 trillion, 2.7x FY19 E&C revenue. Bid pipeline for FY20 is robust at Rs 9-10 trillion mainly from infra (around 50 percent), hydrocarbons (around 25 percent) and power (Generation and T&D - around 15 percent) segments.
For FY20, L&T has guided for order inflow growth of 10-12 percent (around Rs 2 trillion), revenue growth of 12-15 percent and YoY flat EBITDA margins (ex-services).
The company has a good presence in rural and semi-urban areas of India. The Indian rural market has emerged as an important growth engine in the economy. Several schemes were announced in the Union Budget of 2018, which will go on to further strengthen the rural economy. Ministries have planned to spend Rs 14.34 lakh crore for creation of livelihood in rural areas.
The rural market is largely untapped when it comes to the automobile sector.
The government imposed custom duties last year on several grades of steel products mostly imported from China earlier. This has created a huge supply gap of 2-3 lakh tonnes of steel pipes in India, where the company enjoys an upper hand in the Seamless & ERW Pipe business.
To curb over dependence on crude to some extent, the government has mandated 10 percent blending rate by FY22 from 4-5 percent. Currently, the actual blending rate practically achieved is at 3-4 percent and has not seen traction in blending due to unattractive ethanol pricing and low distillery capacity. Although the ethanol story was also earlier present, however, this time the story is different as the government has recently hiked the prices of ethanol by around 25 percent.
The company has cash and investments of Rs 278 crore which could be used for any additional capex.
With greater visibility in sectors like oil and gas, cement, chemicals and fertilizers, we believe that the company is likely to get large order inflows going ahead. Government agenda for advancing renewable space offers possibilities and opportunities for the businesses of the company. The upcoming smart cities planned across India needs integrated solutions and the company provides a range of products from compact sewage treatment and water recycling systems to absorption chillers.
Whirlpool of India is aiming to double its revenue to $1 billion by 2020 on the back of increase in revenue from non-core segments, new product innovations and growing Indian economy. The company is planning to expand its manufacturing capacity in India and to invest Rs 182 crore in the next two years to enhance its single-door refrigerator manufacturing capacity.
The increase in urbanisation, growing large distinct income groups, growing share of large cities, shift in age groups and an urge for a standard lifestyle are the critical stimuli in the sector. The consumer durable market is also likely to witness a growing demand as the government plans to invest significantly in rural electrification.
Brokerage: BP Wealth
Company has established market dominance largely from customisable and distinguished product portfolio. It is a niche player in stainless steel segment.
Its new capacity commissioning would add more opportunity to addressable market. Revival in capex cycle will drive higher operating leverage.
Considering its leadership position in the domestic stainless steel pipe segment, we believe Ratnamani is best suited to benefit from the impending revival in the domestic capex cycle in oil refinery, petrochemicals, power and fertiliser sectors. We expect Revenue/EBITDA/PAT to grow at CAGR of 23.3 /33.4 /31.1 percent respectively from FY18-FY21.
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