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Last Updated : Oct 28, 2019 08:15 AM IST | Source: Moneycontrol.com

Record high in Samvat 2076: Top 10 high-quality stocks for your portfolio  

Mid and small-cap stocks have remained under pressure in Samvat 2075. But, there could be stock-specific opportunities that could come in the next 12 months

 
 
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Indian market remained volatile, but rose a little over 9 percent in Samvat 2075. However, the rally may not be over yet.

Experts feel that we are well on track to hit fresh record highs by Diwali 2020 as most of the bad news is priced in.

There are many global and domestic headwinds which the D-Street has to fight it out in the short term for it to break out into unchartered territory. But, the recent fall in the Indian market has made valuations slightly more attractive.

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Most experts see Nifty50 hovering in the range of 12,300-13,500 levels in the next one year. The opportunities are likely to remain stock specific; hence, investors should do bottom-up cherry-picking from different sectors.

“The earnings yield of equities is attractive and supportive of high valuations. A bearish outlook on oil and commodities in general also upholds India’s case. The fag-end monsoon onslaught, which fetched an excess to the tune of 110 percent of long-term averages, augurs well for the next Rabi crop,” YES Securities said in a note.

“Our one-year target for Nifty is placed at 12,330, based on 21x multiple to FY21 earnings. Our best-case target stands at 12,915 but with high chances of a steep fall, which may even pull back Nifty to sub-11,000,” it said.

The market is putting a good fight amid bad news from both global, as well as, domestic fronts but most of it is in the prices, feels Atul Suri, Founder & CEO, Marathon Trends in an exclusive interview with CNBC-Tv18. He feel that Nifty may touch 13,500 by Samvat 2076.

Key monitorable to watch out in the next 12 months include the global situation, math of fiscal deficit, Indian Rupee movement (specifically pursuant to any US-China trade war escalation) and ongoing stress in real estate, SMEs and shadow banks.

Although mid and small-cap stocks have remained under pressure in Samvat 2075 but there could be stock-specific opportunities that could come in the next 12 months.

In the next three years, there could be 12-15 percent compounded gains in the market, said market veteran Madhu Kela in a chat with CNBC TV18. Kela said that he prefers midcaps than indices at this juncture as it is more about the quality and cheaper stocks than sectors.

We have collated a list of 10 high-quality stocks from different brokerage firms which investors could look at buying for Samvat 2076:

Brokerage Firm: Yes Securities

HDFC Bank: Buy

Within the Indian financial system, the macro scenario has been playing out in a way that would immensely benefit larger well-governed and well-capitalized private banks having solid outreach and brand equity.

The choking of NBFCs, weaker position and consolidation within PSU Banks and specific issues faced by smaller/regional private banks and co-operative banks would mean a significant shift of incremental business to stronger private banks.

The one bank which we trust to take ‘prudent advantage’ of the given opportunity is HDFC Bank. The bank is set to witness accelerated market share gains, reflected in its resilient loan growth delivery amid a slowing system-wide credit growth.

ICICI Bank: Buy

Over the past four years, ICICI Bank has impressively de-risked and rebalanced its core revenue streams by increasing the contribution of retail loans (61 percent of loans), de-emphasizing on international lending (10 percent), focusing on higher-rated domestic corporate loans, reducing exposure to stressed sectors/borrower groups, substantially increasing the share of low-cost sticky deposits and retailizing the fee income to a large extent.

Along with margins and credit cost, subtle improvement in cost metric through digitization would also be an RoA driver. Stand-alone bank’s RoE would likely reach 15 percent in FY21.

Adjusted for the significant value of its holdings in ICICI Pru Life, ICICI Lombard, ICICI Pru AMC, and I-Sec, the ICICI Bank trades at a valuation of 1.7x FY21 P/ABV. Its capital position is robust with Tier-1 ratio at 15.6 percent.

UltraTech Cement: Buy

Post-acquisition of Century cement assets, the domestic capacity of UltraTech Cements has scaled to ~113.4 MTPA, translating into a volume share of 25 percent vis-à-vis 10 percent in FY05.

Although the demand remains jittery in the near term due to liquidity crunch and slowdown in Govt funding towards infrastructure, we believe the sluggish scenario is transient in nature.

We reckon that massive investments lined up in the infrastructure segment combined with a pick-up in tier 2 and tier 3 housing space will drive growth going ahead.

UltraTech Cement will continue to outperform the industry growth rate on the back of ramp-up of organic capacity and sweating of inorganic assets.

Polycab India: Buy

Polycab is a market leader (12 percent organized market share) in the domestic C&W segment led by its diverse product portfolio, strong distribution network, and high brand recall.

Domestic C&W market is expected to witness 10-12 percent CAGR over FY19-22E on the back of strong power distribution capex, strengthening of current T&D network revival in demand from real estate and adoption of electric vehicles.

In line with its aim to evolve as a large B2C player, the company is constantly investing in new products and new categories in the FMEG space.

Led by strong revenue CAGR of 25 percent over FY19-22E in the FMEG space and execution of large orders over the next two years in the C&W segment, we expect the company to witness a revenue/operating profit of 10.8 percent/9.9 percent CAGR over FY19-22E.

Cochin Shipyard Ltd: Buy

Cochin Shipyard (CSL) has an order book of Rs80.5bn & it is also likely to receive incremental order for IAC Phase III (~Rs103bn) soon. This implies a total order backlog of Rs183.5 (~6x TTM sales) by FY20.

Shipbuilding (SB) is expected to deliver a healthy 21 percent CAGR over FY19-21E. CSL also has a shipbuilding order pipeline of Rs100bn+ comprising next-gen missile vessels, solar research vessels & coastal shipping vessels which are likely to be finalized over FY19-21.

Strong infrastructure capabilities coupled with diverse competencies in the SB & SR segments give CSL a significant edge over peers. With a huge capex planned at Rs30bn over FY18-21E (funded through internal accrual) and superior return profile (average RoEs, RoCEs of 15.5 percent, 16.5 percent, respectively, in FY12-17), we believe CSL is a quality play and is on a strong footing.

Brokerage Firm: Motilal Oswal

State Bank of India: Buy

Brokerage firm Motilal Oswal is of the view that State Bank of India (SBI) is well poised for an earnings recovery led by a steady operating performance at the PPOP level, recoveries from NCLT resolutions and normalization in credit cost to 1.9 percent/1.3 percent over FY20E/FY21E.

Hindustan Unilever: Buy

Four key trends point towards an elevated earnings growth trajectory for HUL compared to the past, such as (1) rapidly improving adaptability to market requirements, (2) recognition and strong execution on Naturals, (3) continuous strong trend towards premiumization, and (4) extensive plans to employ technology, creating further entry barriers. Premium valuations are justified as the company has the best earnings growth visibility in the large-cap Indian consumer space, and also, the highest return ratios so far.

Titan Company: Buy

The longer-term investment case remains strong as Titan is well placed to grow led by a combination of its own initiatives and regulatory tailwinds.

With over 60 percent of the jewelry segment growth continuing to come from SSSG, operating margins are also likely to improve.

Ashok Leyland (AL): Buy

Unlike the previous cycles, AL is currently on a strong footing (lean cost structure and net cash balance sheet) and is focused on adding new revenue/profit pools. Valuations are reasonable in view of the downcycle in earnings.

L&T: Buy

For L&T, we forecast adjusted consolidated EPS CAGR of 23 percent over FY19-21. Consolidated RoEs should expand to 17.6 percent by FY21 from 14.6 percent in FY18.

Adjusted for valuation of subsidiaries, core E&C business is trading at FY20/21E P/E of 19.6x/16.1x, which is at a significant discount to its long-term one-year-forward trading multiple of 23x.

Disclaimer: The views and investment tips expressed by investment experts 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.

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First Published on Oct 28, 2019 08:15 am
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