Rupee near 17-month high; 10 stocks likely to benefit

“There does not seem to be any danger of FII outflow, if anything, we could see some inflows as the DM to EM reversal gathers strength. On the downside, therefore, the INR is unlikely to depreciate below 70 to the USD,” Lalit Nambiar, EVP & Fund Manager (Equities), Head – Research, UTI Mutual Fund told Moneycontrol.com.

On the political front, BJP-led government coming in power with a sweeping victory in country’s largest state Uttar Pradesh has provided strength to rupee on the back of stable government along with the hope of more bold reforms coming in future, suggest experts.

The Reserve Bank of India’s (RBI) neutral stance on policy rates has signalled rupee to trade higher against the dollar. The dollar index, which measures the greenback against a basket of six major currencies, dipped below the 100 level for the first time since Feb. 7 on Wednesday.

After strong GDP data and stable December quarter earnings from India Inc., foreign institutional investors (FII) who had turned net seller in the Indian debt as well as equity markets post demonetisation have now become net buyers, suggest experts.

However, further appreciation looks unlikely. Almost 72 per cent of the respondents polled by Moneycontrol.com earlier in the month said that the rupee is likely to hover in the range of Rs 64-67/USD by December 2017 while 17 per cent are of the view that it would go below 64 and the rest feels that it would depreciate beyond Rs 67/USD.

“The rupee appreciation will bring pain for the export-oriented sectors like information technology, pharma, reality, and Tourism. However, somebody loss is somebody gains, so import oriented sectors like power and metal sectors are in the list of beneficiary sectors from rupee appreciation,” Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments told Moneycontrol.com.

“Companies having a large number of borrowings in dollars are likely to be benefitted like power companies. We advise investors to look to enter in Tata Power, Tata Steel, Hindalco, Gitanjali Gems, and Titan Company,” he said.

Oil marketing companies, as well as paint companies, will be a smart play on dollar weakness as well crude oil which is now hovering near the $50/bbl mark. Apart from those companies with higher dollar denominated debt will also benefit from rupee appreciation.

A strong rupee is positive for companies who hold FCCB and thus pay lesser interest outflow in dollar terms says our Fundamental Research Analyst, Dhiral Shah. Stocks to benefit will be Vedanta Ltd, Havells India, and to some extent even to Bharti Airtel.

Also OMC stocks like IOC, BPCL & HPCL along with paint and varnish companies like Asian Paint, Berger Paint will benefit from strong rupee as their major input costs are from the import of crude oil internationally.

Here is a list of ten companies which can benefit the most from rupee appreciation and how are they placed on the technical charts.

Analyst: Pushkaraj Kanitkar, AVP Technical Research at GEPL capital

HPCL: Target Rs 540

In the calendar year 2017, the stock price moved from a level of Rs 415 at the start of January to Rs 580 in mid-February. The same has met with a correction over the last 2 months with about 50 per cent Fibonacci retracement marked around Rs 497.

The level of around Rs 490 also houses the longer term 100-days moving average (DMA). A correction in crude oil as well as the USD still seems to be not discounted and may give rise to a bounce back at least to a level of around Rs 540.

Thus the risk reward looks in favor of the bulls from here on. A move sustaining below Rs 490 would be the only risk element involved.

BPCL: Target Rs 675-680

The price chart houses the 200-DMA placed at Rs 618 mark. The level of Rs 600 also corresponds to the 6-month low. Earlier leg of the rally saw a rise from Rs 605 to Rs 730 that was met with a drift down to the Rs 620 mark that had the 200 DMA. A bounce back to levels around Rs 675-680 may not be ruled out.

India Oil Corporation: Target Rs 402

This stock is the strongest of the lot amongst the OMCs. ICO has corrected just around 6 per cent from an all-time high of Rs 402. The level of Rs 345-360 also corresponds to the consolidation zone of January 2017.

The level of Rs 365-370 also houses the 55-DMA as also the 23.6 per cent Fibonacci retracement of the earlier leg. Hence, the risk-reward ration looks favourable.

Asian Paints: Target Rs 1145

The earlier move from Rs 1,225 in October 2016 to Rs 860 in December 2016 has met with a strong bounce back that crossed the 50 per cent retracement placed at Rs 1,044.

The current move maintains in a rational uptrend parsing a higher top and higher bottom formation. The upside targets of Rs 1,145 maybe on the cards with a trading stop placed at the 200-DMA placed at Rs 1,030.

Berger Paints: Target Rs 275

The scrip saw a sharp correction in November 2016 that spaced from Rs 275 to Rs 175. This move has met with a bounce back and the prices are now trading in a close channel ranging from Rs 200-235 over the last 3 months, a sign of good consolidation.

One may ideally play a breakout above this range around the Rs 240 mark, with a possible target of Rs 275 mark.

Analyst: Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments

Tata Power: Target Rs 91.6

Tata Power will be impacted as the price of coal that the company import is linked to international prices. Investors can look at buying the stock for a target of Rs 91.6 and a stop loss of Rs 84.

Tata Steel: Target Rs 509

Tata Steel who is the importer of iron ore may be also benefitted. Investors can buy the stock for a short term target of Rs 509 and a stop loss of Rs 488.

Hindalco: Target Rs 200

The company is likely to benefit from the rupee rise as its realisations are import parity linked while alumina requirements of its Indian operations are met from domestic sources. Investors can buy the stock for a short term target of Rs 200 and a stop loss of Rs 187.

Titan Company: Target Rs 463

‘Gems & jewellery’ companies remain fruitful from the rupee appreciation. India has been importing gold from the international market. Hence, rupee strengthening increases these companies margin significantly.

Investors can accumulate Titan Company keeping a short term target of Rs 463 and a stop loss of Rs 435.

Gitanjali Gems: Target Rs 70.9

Gitanjali Gems which belongs to the gems and the jewellery sectors will remain in focus if the rupee continues to trade higher against the dollar. Investors can buy the stock with a short term target of Rs 70.90 and a stop loss of Rs 64.75.

(Views and recommendations given in this section are analysts’ own and do not represent those of Moneycontrol.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)