Sunil Shankar Matkar Moneycontrol News
Indian equities have been caught in bear trap last couple of weeks as the Nifty50 lost more than 300 points and the Sensex shed over 1,000 points from record highs hit on August 28.
The consistent sharp weakness in rupee against US dollar, renewed trade war tensions between the world's largest economies the US and China, and widening trade deficit on rising crude oil prices caused selling pressure.
As the global and domestic sentiments are weak, some more correction and consolidation could be possible before resuming uptrend, experts said.
"The fall was evident, citing deteriorating local cues and continuous threat of trade war escalation. We feel it's a normal correction, considering the rise that we had in Nifty in recent past," Jayant Manglik, President, Religare Broking told Moneycontrol.
He said indications are in favour of further decline and expects Nifty to find support around 11,300. Trades have no option but to align their position accordingly and avoid naked longs, he advised.
Despite the current correction, the Nifty50 is still up 8.6 percent and the Sensex 11.3 percent year-to-date, which indicated that the market has been managing to climb all wall of worries very easily, experts said.
"Year-to-date Nifty has been the best performing index in the emerging market basket. If we look at the recent past of the current bull market, Nifty makes a cyclical high once it starts trading at 24 times trailing 12 quarter earnings and it makes a bottom around 18 times one year forward earning," Shailendra Kumar, Director & CIO, Narnolia Financial Advisors told Moneycontrol.
So, using the current consensus estimate, the immediate trading range for Nifty is 10,980-12,089, he said, adding it is important to know that every quarter this range needs to be adjusted mostly upward, based on reported earnings.
Presently, based on FY19 and FY20 EPS estimate, the target for Nifty for March 2019 is 12,620, he said.
Here is the list of 10 fundamentally strong stocks to buy which could give high returns over one year:
Sumit Bilgaiyan, Founder, Equity99
BHEL: Buy | Target: Rs 115 | Return: 48%
BHEL posted stellar performance in Q1FY19. During Q1FY19, its net profit zoomed 93 percent to Rs 156 crore from Rs 81 crore on a YoY basis on 8 percent higher income of Rs 5,790 crore.
Its order booking increase by two and half time to Rs 4,371 crore compared to Rs 1,744 crore in the corresponding quarter last year.
BHEL has a total order book of Rs 117,000 crore by end of Q1FY19. It has formed small inverted head and shoulder pattern on the daily chart which is bullish in its nature. On the back of this improved performance and technical structure, we are recommending a buy with target of Rs 115.
PFC: Buy | Target: Rs 120 | Return: 36%
PFC has reported degrowth of 42 percent in PAT on YoY terms. Restructured loan book is down almost 1300bps QoQ of which public restructured assets constituted to be around 6.9 percent of overall loan book, which is down by 870bps QoQ.
Of total loan assets 65 percent of advances were extended to state power utilities, 8 percent to central power utilities, 17 percent to private power utilities, and 9 percent to joint sector power utilities. Loan
book growth stood at 6.4 percent QoQ and 13.6 percent YoY as overall disbursements went almost 2.5x QoQ on the back of strong loan off take in distribution and renewable generation.
The company will remain focused towards the renewable sector due to the commissioning period in these loans is lower and the average yields are 50-100bps lower too. Admittedly, contribution to loan book is still small. Given that large part of stress pertains to state utilities, where recovery is just a matter of time we believe stock is available at a throw away price. It is trading at below band of its historic P/B value band. We are recommending a buy with a target of Rs 120.
IOL Chemical: Buy | Target: Rs 250 | Return: 92%
Company's strong performance sustains in Q1FY19, so we are maintaining our buy call with revised price target of Rs 250. Revenues grew 68 percent YoY to Rs.362 crore mainly due to higher demand of its flagship product Ibuprofen. EBITDA margin remains in double digit at 11.99 percent. EBITDA grew by 57 percent YoY to Rs 43.43 crore.
Exports increased by 88 percent to Rs.147 crore. Profit after tax (PAT) grew 383.55 percent to Rs 14.41 crore from Rs 2.98 crore, which is above our expectation.
We are maintaining our Buy recommendation with a revised price target of Rs.250 (valuing at 20x its FY19E EPS).
Adani Enterprises: Buy | Target: Rs 300 | Return: 99%
Adani Enterprises is the flagship company of Adani Group, one of India's largest business conglomerates. Its business portfolio comprises coal trading and mining, agri-storage infrastructure
and services as well as edible oil and gas distribution.
Its consolidated profit after tax (PAT) rose by 6 percent to Rs 169 crore in the April-June quarter of 2018-19. Consolidated income from operations fell to Rs 7,954 crore in the quarter under review from Rs 8,548 crore in the same quarter of the preceding fiscal.
We are positive in Adani’s story and recommendation with a price target of Rs.3005)
Parag Milk Foods: Buy | Target: Rs 400 | Return: 36%
The company has posted a quite healthy growth in Q1FY19. Its profit zoomed 168 percent to Rs 28.3 crore against Rs 10.5 crore. EBITA increased 109 percent to Rs 59.7 crore against Rs 28.5 crore while sales increased by 33 percent to Rs 549.4 crore against Rs 412.9 crore. Its EBITDA margin improves to 10.9 percent from 6.9 percent. The firm recently launched Avvatar Advance Muscle Gainer.
The product specially designed to support lean muscle gain with controlled fat levels. It has also launched Mishti Doi under the Gowardhan brand. The firm has acquired newly plant at Sonipat which will help company to enter in North India’s market.
Stock is trading at a PE ratio of 24.7x which is lower against peers. We are recommending a Buy for target of Rs 400.
Akash Jain, Vice President - Equity Research, Ajcon Global
SBI Life Insurance: Buy | Target: Rs 800 | Return: 19%
We believe life insurance segment is underpenetrated, rising share of insurance in financial savings and given the big opportunity present in this sector, we recommend investors to have a slice of it in their portfolio. India continues to be under penetrated as compared to countries like Thailand and Korea.
At CMP of Rs 664, the company is valued at 3x of Market Cap/Embedded Value. The company boasts of a strong distribution network owing to its parent SBI reach in the country and low cost to income ratio as compared to peers. We recommend a 'Buy' with a target price of Rs 800 by FY19 end implying an upside of 20 percent.
M&M Financial Services: Buy | Target: Rs 544 | Return: 22%
We believe Mahindra & Mahindra Financial Services is cheap as compared to other listed NBFCs. The company improved its Return on Assets significantly from 1 percent in FY17 to 1.9 percent in FY18. With improving rural cash flows, recovery from NPAs would help the company to improve its ROA of 2.6-2.8 percent by FY20.
The management is optimistic on improving rural cash flow which should lead to growth of 18-20 percent in FY19 across segments.
NPAs in the rural housing is expected to reduce in coming quarters as Maharashtra has improved in cash flow and which will translate towards recoveries. PCR stood at 58.1 percent in FY18. We expect a target of Rs 544 by FY19 end (P/BV of 3.2x on estimated FY19E Book Value of Rs 170) implying an upside of 22 percent.
Shailendra Kumar, Director & CIO, Narnolia Financial Advisors
Larsen & Toubro: Buy | Target: Rs 1,734 | Return: 29%
Management plans to double its revenue to Rs 2 lakh crore by FY21 and improve margin from 10 percent to 11.6 percent. Management also looks committed to improve return ratio. Order inflow is up by 36 percent YoY mainly led by domestic infrastructure projects. Our near term target is Rs 1,734.
Marico: Buy | Target: Rs 430 | Return: 25%
Promotion and Modern Trade problems that Marico was facing over last two years are getting solved. Gradual recovery in Saffola’s business is expected. The company targets for double digit growth for Value Added hair oil in FY19.
International business is also expected to clock in double digit constant currency growth in the next 3 quarters. The company should report better margin in the second half of FY19 on account of softening of copra prices. Our near term target is Rs 430.
Dixon Technologies: Buy | Target: Rs 3,350 | Return: 24%
The company is in the niche segment of contract manufacturing. Revenue growth is expected at 25 percent for FY19 driven by capacity additions, new client acquisition in TV while backward integration to help margins where electronics faced cost pressures recently. Our near term target is Rs 3,350.
Disclaimer: The views and investment tips expressed by investment expert 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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