Sectors likely to see sharpest bouts of short covering are likely to be IT, PSU Banks & Pharma
The Nifty, which hit a fresh record high of 9,800 on Tuesday, is on track to climb Mount 10K which could well come in July series, suggest experts.
The Indian markets broke out of a narrow trading range on Monday and if the momentum continues, Nifty should be able to surge past 9900-10,000 levels this month which is just 200 points away.
Some dealers quoted by CNBC said that nearly $1-1.2 billion is likely to enter D-Street on short coverings by foreign investors this month which could eventually take Nifty towards 10,000.
Foreign investors rushed to cover their positions after SEBI restricted the use of P-notes to hedging. In the case where the underlying derivatives position are not for purpose of hedging the equity shares, the issuing FPI has to liquidate such ODIs latest by the date of maturity or by December 31, 2020, whichever is earlier.
“Short covering might well continue as front running has caused a sharp upswing in beaten down stocks that had short build up and will see aggressive short covering on the back of the SEBI decision to restrict short selling in derivatives through P-Notes,” Kunal Saraogi, CEO at Equityrush.com told Moneycontrol.
“This can well take the markets to and beyond 10,000 on the Nifty which is barely 200 points away. Traders must continue to hold long positions in the index,” he said.
If we look at the options data, the maximum Call open interest of 42.89 lakh contracts is now placed at strike prices 10,000, followed by 9,800 which has accumulated 42.40 lakh contracts in open interest, and 9,700 which has 34 lakh contracts in open interest.
Fresh Call writing was seen at strike price 10,000 where nearly 6 lakh contracts were added, followed by 10,100 and 10,200 strikes.
“We have to consider both Long & Short positions. Yes, there is a possibility that due to short covering, Nifty can move towards 9,900 to 10,000,” Hemang Jani, Head - Advisory, Sharekhan told Moneycontrol.
Sectors likely to see sharpest bouts of short covering are likely to be IT, PSU Banks & Pharma. Stocks that might see a surge due to short covering include names like TCS, Just Dial, Lupin, Bank of India, and Union Bank among others.
Here is a list of top 10 stocks which can give up to 30 percent return in next 1 year. The return is calculated from closing price of 11 July.
Tata Motors: Buy | Target: Rs 595| Return: 30%
Citigroup maintains a buy rating on Tata Motors with a target price of Rs 595. The global investment bank continues to be positive on Jaguar Land Rover primarily due to its strong product pipeline which should aid volumes as well as profits.
In the domestic business, while there is some recovery in the PV segment (new models- Tiago, Hexa, Tigor), the CV segment continues to face macro/regulatory headwinds.
JLR reported healthy 11 percent retail sales growth in June (51,591 units), reflecting a more normalized market environment in Britain. Sequentially, Citi expect this growth rate to accelerate to double digits, as the new model line-up.
Biocon: Overweight| Target: Rs 421.33 | Return: 30%
Morgan Stanley maintains an overweight rating on Biocon with a target price of Rs 421.33. The global investment bank views Biocon as a beneficiary of the unfolding global biosimilar opportunity and rate favorably its pipeline of four lead products.
“We expect EM monetization to gain ground in 2017, followed by EU monetization in 2018 and US in 2019. But, F2018 could be challenging for earnings given startup of its Malaysian facility (F2018 - US$48mn upfront charge),” said the report.
ITC: Buy | Target: Rs 389| Return: 17%
Nomura maintains a buy rating on ITC with a target price of Rs389. The global investment bank believes that most headwinds for ITC are out of the way and strong earnings revival is likely.
It sees earnings CAGR of 17.6 percent over FY17-20 on the back of revenue CAGR of 14 percent. Further, it has raised FY19 earnings by 2 percent to incorporate changes with GST rollout.
HDFC Bank: Buy | Target: Rs 2,000 | Return: 19%
CLSA maintains a buy rating on HDFC Bank with a target price of Rs 2000. The global investment bank highlighted that the private sector lender was investing in artificial intelligence, automation and branch digitisation.
Further, it added, that the digitisation investment should aid employee productivity. Moreover, growth in debit cards will be the key to CASA growth going ahead. With agri loans growing, the report highlighted that NPLs could see some pressure from farm loan waivers.
Lupin: Outperform | Target: Rs 1,310| Return: 15%
CLSA maintains an outperform rating on Lupin with a target price of Rs 1310. The Asia focussed broker said that the strong cash flow generation, driven by top US products is a key positive for the company. Meanwhile, a sharp decline in Japan margins is a key negative. Further, it has cut FY18-19 earnings per share by 2 percent.
While FY18 is likely to be a lackluster year on earnings, it will be an exciting year with respect to filing differentiated products in the developed markets. CLSA makes Ebitda-line adjustments to their forecasts which lead to 2 percent EPS cut for FY18-19.
Shankara Building Products: Buy | Target: Rs 1,250-1,400| Return: 25-40%
ICICI Direct maintains a buy rating on Shankara Building Products (SBPL) with a target price of Rs 1250-1400 in the next 18-24 months.
SBPL is one of the leading organised retailers of home improvement & building products in India. Currently, SBPL operates 112 stores across nine states and one union territory in India.
The home improvement retail market dynamics are favourable for SBPL’s future growth. Furthermore, the company has a strong balance sheet with net D/E at 0.4x. Its return ratios are expected to improve over the next few years with increasing pie of retail sales.
The brokerage firm expects SBPL’s topline, the bottom line to grow at 14.7 percent, 33 percent CAGR to a Rs3040.4 crore, Rs106.6 crore, respectively. Currently, SBPL is trading at 21.4x FY19E EPS.
Morganite Crucible (India): BUY| Target: Rs 1,370 | Return: 22%ICICI Direct maintains a buy rating on Morganite Crucible (India) with a target price of Rs 1370 for a period of 12-15 months.
Morganite Crucible (India) (MCL) is in the business of crucible, crucible accessories, foundry consumables and allied products.
MCL has strong financial track record - revenue, EBIDTA & PAT CAGR of 15.7 percent, 21.3 percent & 30.2 percent over FY07-17 coupled with average RoEs, RoCEs & RoICs of 15.6 percent, 21.3 percent and 34.7 percent, respectively.
MCL is also debt-free and has average cash flow yield of 4.1 percent. Accordingly, we estimate 15 percent growth in topline for MCL over FY17-19E.
Godrej Industries: Buy | Target: Rs 780| Return: 18%
ICICI Direct maintains a buy rating on Godrej Industries (GIL) with a time horizon of 12 months. The domestic brokerage firm has valued GIL using SOTP valuation methodology wherein we have valued the key holdings of GIL using its current market capitalisation and assigning a 10% holding company discount.
For rest of the businesses viz. standalone chemicals (Oleo-Chemicals) and Nature’s Basket, we value these businesses using MCap/sales valuation technique. Our fair value target price for GIL comes to Rs780/share (18% potential upside) with an investment horizon of 12 months.
IRB Infrastructure: Buy | Target: Rs 273| Return: 26%
Anand Rathi maintains a buy rating on IRB Infrastructure with a target price of Rs273. The recently-floated InvIT for the six assets is positive: it not only instantaneously de-levers the balance sheet but also sets in place a structure to churn assets (capital invested) regularly.
On adequate growth opportunities and a significantly better balance sheet, Anand Rathi retains a Buy rating on the stock. The stock trades at PBV of 1.3x FY18e and 1.1x FY19e.
Dollar Industries: Buy | Target: Rs 2,646| Return: 19%
Anand Rathi maintains a buy rating on Dollar Industries with a target price of Rs 2646. It has a sharp focus on a better product mix, widening distribution reach together with cost rationalisation augur well for Dollar Industries’ earnings growth (a 48% CAGR) in the next two years.
The company has strong brand positioning, product launches and deeper penetration offer immense scope for growth. With structural drivers at play, Anand Rathi believes that the company finds itself in a sweet spot.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.Follow @kshanandThe Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .