Benchmark indices which rose to record highs in the run-up to Diwali may consolidate before inching higher, suggest experts.
After a blockbuster Samvat 2073, investors were looking forward Samvat 2074 to start on a strong note but muted quarterly results, weak global cues dented the sentiments.
The S&P BSE Sensex slipped nearly 200 points while the Nifty50 close below its crucial psychological support level of 10,200 on the muhurat trading day on Thursday.
Benchmark indices which rose to their fresh record highs in the run-up to Diwali last week might consolidate before inching higher, suggest experts. Corrections are part of all bull markets and any dip should be used as an opportunity for long investors to build positions.
“The market started the Muhurat Trading under the influence of North Korea related situation and we expect markets to probably go down. But, I do not think that it is going to be an end in it,” Deven Choksey, MD, KR Choksey Investment Managers said in an interview with CNBC-TV18.
“I am not sure what situation we are entering into as far as geopolitical aspects are concerned, but my reading says we are in a Bull Market, and correction of any degree would be taken to the advantage by the long-only investors,” he said.
Earnings which have been the pain point for our market for the last several quarters should eventually improve in the next six months as effects of demonetisation fade and GST-related problems are addressed.
Index movement might remain muted but there will be plenty of action in individual stocks, suggest experts.
“Economy is looking up, earnings momentum is building up from this quarter itself and the flow, domestics are really buying this time. The mood is very good and the valuations are high but the mood is very good and flow is very good,” Raamdeo Agrawal, Joint MD, Motilal Oswal Financial Services told CNBC-TV18.
“I think the companies which are going to do well, they are going to be saluted like never before. Earnings will be respected and stocks will see higher prices. Index movement, because of mixed earnings scenario, might be much more calibrated in the sense that maybe another 10 percent, 15 percent kind of gain,” he said.
We have collated a list of 10 stocks which could give up to 28% return in Samvat 2074:
Brokerage Firm: GEPL Capital
VST Tillers Tractors Ltd: BUY | Target Rs 2,575 | Return potential 16%
VST Tillers Tractors is one of the largest manufactures of Tillers & Tractors in India. The company exports products to Africa, Russia, and Myanmar. It has a market leadership in power tillers at 59 percent as on FY17.
The management expects strong double-digit growth in tractor volume and hopes to sell close to 11,000-12,000 tractors in FY18. In the tiller segment, the company expects to sell close to 27,000 tillers in FY18, implying high single-digit growth.
The company is looking at 200bps year-on-year (YoY) margin expansion in FY18 and is expecting improvement in margins in Q3 FY18/ Q4 FY18. Margins in Q1 FY18 stood at 13.8 percent and in FY17 they stood at 14.2 percent.
With government support for the farm equipment through subsidies and schemes and good monsoons followed by a revival in rural demand given the tiller subsidies by the government and loan waivers to the farmers, we expect the company’s revenue to grow by 20 percent in FY 18 to Rs 832.5 crore from Rs 695.1 crore in FY17.
Time Technoplast Ltd: BUY | Target Rs 246 | Return potential 28%
The company is involved in manufacturing and marketing of polymer products such as industrial drums, conipails, packaging solutions, automotive components, Syringes etc. The company has focused on research and development.
With its futuristic product design and superior customer service, facilitated by 28 manufacturing units & 10 regional and marketing offices, it has become the market leader in 8 of the 9 countries in which it operates.
Strong order book will help the company to achieve the higher double-digit growth. The company also has better product mix which helps them to expand its operating margins. The healthy balance sheet and return ratios make business structure more robust.
Himadri Speciality Chemicals Ltd: BUY| Target Rs 193 | Return potential 21%
Himadri Specialty Chemical Limited (HSCL), the largest manufacturer and only organised player of coal tar pitch in India.
HSCL is the third largest manufacturer of Carbon Black (CB) with a capacity of 1,20,000 MTPA enjoying 17 percent market share in overall CB industry as of FY17.
HSCL has emerged as a carbon conglomerate leveraging its competence in diversified businesses including coal tar pitch, chemical oils, carbon black, naphthalene and an advanced carbon material with the use of single raw material -coal tar.
HSCL enjoys a healthy market share of 70 percent in Coal Tar Pitch segment and 17 percent in Carbon Black segment.
JK Cement (JKCL): BUY | Target Rs 1,137 | Return potential 16%
J K Cements Ltd (JKCL) is one of the old cement manufacturing companies in India. The company has better manufacturing capacity and favorable products mix.
The company holds 40-45 percent market share in white cement which can create better business opportunity in the upcoming quarters. The rising expenditure on infrastructure will boost the sales in the upcoming quarters for the company.
We also believe that scaling the manufacturing capacity of grey cement will help to boost the revenue. Hence we are positive on the stock and recommend BUY.
Rain Industries Ltd: BUY | Target Rs 235 | Return potential 8%
Rain Industries Ltd. is mainly operating into three main segments through its fully own subsidiaries. Rain cements Ltd. into cement segment. Rain CII Carbon into calcined petroleum coke and power and Rutgers through specialty chemicals.
All three segments are trending higher on the business life-cycle and have higher business perspective in the upcoming quarters. We believe that the strong business matrix and robust balance sheet makes Rain industries more lucrative.
Brokerage Firm: Emkay Global
Chambal Fertilisers: BUY | Target Rs 158| Return potential 9%
Chambal Fertilisers is the leading urea manufacturer in India with total sales of ~2 million MT in FY17. The new Gas Pooling policy encourages production above the cut-off, which is beneficial for Chambal as it enjoys strong energy efficiency at its plant.
With the sale of shipping assets, Chambal has exited from all non-core businesses and has thus become a pure play on fertilisers and agri inputs. We believe this would trigger a re-rating, as the company’s ROCE profile will improve.
Fertiliser segment enjoys higher ROCE at 14-15 percent compared to the Shipping segment where ROCE is 5-6 percent. Due to the huge capex, we expect ROCE to remain depressed over FY18-19, post which it should come back to 15 percent from FY20E.
Cholamandalam Finance: BUY | Target Rs 1,350| Return potential 21%
Cholamandalam Finance (CIFC) has built a well-diversified and de-risked product portfolio, which has insulated it from the CV downcycle.
With 1) growth returning and asset quality improving in Vehicle Finance, 2) low overall Auto Financing market share and 3) expectation of revival in Home Equity (HE; LAP) portfolio post demonetisation, we believe CIFC is better placed than its peers.
The stock trades at a premium to its larger peers, but it is justified due to relatively higher earnings growth and better ROE profile. CIFC trades at 3x FY19E BV for average ROE of 20 percent over FY17-19E.
While CIFC trades at a premium to some of its larger peers, one needs to view this in the context of its superior earnings growth, better ROE (despite conservative NPL recognition policies) and superior execution track record of its management.
IOC: BUY | Target Rs 496| Return potential 21%
Stable GRM expectation of over US$5/bbl in the next 4-5 quarters, complimented by robust growth in marketed volume by 5.6 percent YoY in FY18E and stable marketing margin in FY18E will lead to a c36 percent YoY growth in FY18E EPS. Moreover, ROE should stay healthy at 21 percent in FY18.
We expect IOCL to re-rate further, driven by a combination of the following factors: (a) expansion in total marketed volume, (b) increasing marketing margin, (c) stable GRM expectation at USD 5/bbl and (d) gradual decline in concern over pricing power and govt. intervention, as OMCs, press ahead with price hikes in rising oil price scenario.
At CMP of Rs 400, the stock is trading at 9.6x FY18E EPS. On EV/EBITDA basis, the stock trades at 5.3x FY18E. We value IOCL at 10.5x standalone FY18E EPS with an investment value of Rs 56/share.
Emami India: BUY| Target Rs 1,200| Return potential 4%
Emami is a unique play in Personal and Healthcare and has created and attained leadership in Cooling Oil, Cooling Talc, Men’s Fairness Cream, Balms and Antiseptic Creams.
Positioning its products around the Ayurvedic theme, focus on low unit packs, low competition, and aggressive distribution have enabled it to create 5 power brands in respective categories.
Mass-market focus, product innovation, and distribution would ensure 13.4 percent revenue CAGR over FY17-19E. We believe that Emami is a good play on the recovery in rural markets (50% of its sales).
Double-digit volume growth is achievable, owing to recovery in rural markets and strong new product pipeline. The company has guided for a 15 percent volume growth in 9MFY18. New launches will contribute 2-3 percent to overall revenue.
Godrej Consumer Products: BUY| Target Rs985| Return potential 3%
Low penetration, rising urbanization, the shift from need-based to habit-based products and innovative product launches/variants are likely to drive robust growth in HI and Hair Colour segments.
Given these drivers, we expect HI and Hair Colour to grow at a CAGR of 11.5 percent and 13.7 percent, respectively over FY17-19E.
We expect innovation, distribution expansion and a gradual uptick in urban areas to drive volume growth in domestic business, while share gains, innovation and market expansion across LatAM, Asia and Africa will drive growth in international operations.
Cost-saving initiatives (Project Pie & Iceberg) are yielding returns. Expect margin trajectory to be led by lower inputs, mix and cost efforts.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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