Experts feel there are only a handful of companies that could be considered for investment for the year 2020
The September quarter turned out to be uninspiring for D-Street amid a muted demand environment, but there are some companies that outperformed on a year-on-year (YoY) basis and on a sequential basis as well.
There are as many as 14 companies that saw more than 100 percent rise in their bottom line on a YoY and QoQ basis. The names include Gujarat Gas, Rites, Gujarat State Petronet, Suven Life, Glaxo SmithKline Pharma, Laurus Lab and Strides Pharma, according to data collated from AceEquity.
So can these stocks be considered as rising stars for 2020? In other words – will the momentum continue in these companies?
Experts feel there are only a handful of companies that could be considered for investment for the year 2020.
“Though all these companies have performed exceptionally well, not all can be considered as rising stars for 2020 as there could be multiple factors that led to an increase in PAT. For instance, many companies in the quarter may have benefitted from the corporate tax rate cut,” Ajit Mishra, VP Research, Religare Broking told Moneycontrol.
“From a long-term perspective, we would recommend investors to invest in stocks such as Gujarat Gas, Jk Tyre, GSK Pharma, Astral Poly and Rites Ltd. which could perform well and see consistent growth in 2020,” he said.
"We are positive on stocks like PNC infra, Astral poly , Laurus labs and Gujarat gas owing to strong business visibility and earnings growth over next 2-3 years," Sanjeev Hota, Head of Research, Sharekhan by BNP Paribas told Moneycontrol.
"Post the recent run up, the benchmark indices are not cheap anymore and India trades at substantial premium to MSCI Emerging market index. Consequently, there is a case for increasing allocation in quality mid-cap companies for relatively better returns over the next 12-24 months," he said.
If we look at the snapshot of September quarter earnings, large-caps continued to outperform midcap and small caps in these challenging times. Despite tax rate benefits, profitability was still muted in the midcap and small-cap space.
Corporate earnings in Q2FY20, with Sensex topline (ex financials) declining 2 percent on a YoY basis. For the listed universe (~3,000 companies), topline de-grew 1.1 percent YoY while bottom line de-grew 16.6 percent YoY, ICICIdirect Research said in a report.
Another big factor is the fact that should be interpreted by investors is the reason behind the rise in the bottom line. There could be numerous ways under which the net profit more than doubled.
“There are two companies which have genuinely doubled its PAT like Gujarat gas and Laurus Labs. We believe this trend of rising PAT will continue for these two companies, although not doubling its PAT, and we have a positive view on both these companies,” Atish Matlawala, Sr Analyst, SSJ Finance & Securities told Moneycontrol.
“Gujarat Gas is likely to see earnings boost in earnings as a result of National Green Tribunal’s order to shut all coal-operated units of ceramic companies in Morbi, Gujarat,” he said.
Matlawala further added that Laurus Labs was largely catering to domestic pharma market but is now expanding its footprint in developed countries like US where it has 8 ANDA approvals and another 21 is in the pipeline, in Europe it has 4 ANDA approvals and has 6 in the pipeline and in Canada it has 4 ANDA approvals and has 7 in the pipeline. This will give a boost to earnings in the coming quarters.
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