Lot of businesses are available at multi-year low valuations, people with longer-term horizons should invest in a staggered manner to take advantage of these prices rather than try to predict the bottom
Markets, the world over, are clearly unnerved by the likely impact of the coronavirus on the global economy. Morgan Stanley has already warned about a likely recession-like scenario in its base case scenario.
Industry after industry is being affected, and the major economies of the world, be it the USA, China or Europe, all are feeling the heat of the virus threat.
“Investors have been griped with the fear psychosis as to what will happen next. And it appears that the markets are unable to quantify the unquantifiable,” Aamar Deo Singh, Head Advisory, Angel Broking Ltd told Moneycontrol.
“Investors are advised to not exit from their mutual funds at current levels, as already the major indices have corrected by over 30% and individual stocks, in many cases have corrected by even 50% or so,” he said.
Singh further added that selling off in panic is definitely not the way forward, in such times of uncertainty. It will help you separate the men from the boys, which then can be put to good use in the future as well.
We spoke to various experts and here is a list of 10 stocks which are looking attractive after the recent breakdown in markets:
Brokerage Firm: Kotak Institutional Equities
The brokerage firm slashed FY2021-22E revenue by 5-7 percent and EPS by 10-11 percent as we build the impact of COVID-19 pandemic globally. It forecast revenue decline of 0.9 percent in FY2021E and expect EBIT margin to decline to 20.6 percent.
Normalization of growth is likely to happen by FY2022E. Post 32 percent correction in stock price, Infosys trades at trough multiple.The stock was upgraded to buy from add on – (1) attractive valuations; we valued Infosys at normalized multiple of 16X FY2022E earnings resulting in fair value of Rs 680 (Rs 810 earlier) and (2) wallet share gains and excellence in execution will ensure that it remains in the top percentile on growth.
Bharti Infratel: Buy
The sharp recent correction has brought down Bharti Infratel's EV to 3.9X 3QFY20 annualized EBITDA. Even as we appreciate the sharp, immediate risk to this EBITDA from further consolidation in the wireless market, Kotak believes some of the EBITDA lost will be recouped on the back of (1) higher tenancies from the surviving operators and (2) higher rental/tenant driven by the sliding rental structure.
It upgraded to buy (from reduce) with a revised face value of Rs 185/share. The revised face value reflects a 2+1 wireless market structure.
Apollo Hospitals: Buy
Kotak expects Apollo Hospitals to benefit from an improving maturity profile, even as the near-term outlook is challenging given a lower volume of international and domestic travel patients, as well as deferment in OPD footfalls and elective surgeries, though, a full demand recovery in 2HFY21 is likely.
Kotak cuts FY2020/21 estimates and upgrade to buy with a revised fair value of Rs 1,820/share (versus Rs 1,840/share).
United Spirits: Buy
Kotak upgraded United Spirits to buy from reduce with a fair value of Rs 660. United Spirits has executed well on premiumization and non-COGS cost optimization over the past few years notwithstanding a weak demand environment and raw material headwinds.
Even as demand environment remains challenging (especially ST impact of COVID-19), raw material prices have stabilized and valuations have turned attractive.
Cummins India: Buy
Kotak upgraded Cummins India to a buy from reduce based on (1) our assessment of earnings downgrade cycle being largely behind us, (2) diversified mix of businesses helping chug through current uncertain times and (3) reasonable valuations at sub-17X trailing earnings.
The brokerage firm lowered fair value to Rs 520 from Rs 590 on 11 percent cut in estimates and lower 18X multiple. Prospects from the shift of business to Cummins India from China and from revision in domestic emission norms provide defence against unforeseen negatives in the base business.
Brokerage Firm: YES Securities
ABB India: Buy
ABB is banking on increased traction in smart factory, remote monitoring, data centers, process industries, F&B, life-cycle management and urbanization as its expertise in the core sector is the key differentiator for digitalization solution.
ABB is a key supplier of critical electrical equipment like motors, transformers, rectifiers, inverters, etc. systems to rolling stock manufacturers around the world.
With Indian railways moving swiftly towards the procurement of electric locomotives, the brokerage firm believes ABB is likely to see strong business momentum over the next 3 years.
Birla Corporation - BUY
Birla Corporation has brought down RM costs in Chanderia plant by Rs175-200/te through improved mining efficiencies and curbed purchase of outside clinker/limestone. Consequently, the RM costs/te of standalone cement business (BCL) was flat over FY14-FY19 despite a 7-12 percent annual increase in fly ash, slag and gypsum cost.
Colgate-Palmolive (India) - BUY
Colgate India is the leading oral care company in India, with ~53 percent volume share in the toothpaste category and 45 percent share in the toothbrush category.
The company enjoys strong brand equity and takes a proactive approach to product innovation, and deepening distribution reach should keep it in good stead over the medium term.
It expects the margin to fare better in FY22E backed by select price hikes, better mix and a modest increase in Ad spends.
After Market share loss of ~5 percent in the last 4 years, market share loss has been arrested and can perhaps move higher in the next 3-4 years after moderation in the growth of naturals toothpaste sub-segment normalizes. Currently, the stock is trading at an undemanding valuation of 24x FY23E P/E.
Godrej Industries - BUY The medium to long-term positive largely backed by improving traction in its key subsidiaries which include:
Godrej properties: Access to large land banks, strong brand recall, benefits to large organized players, and demand improvement expectations in its key geographies places company in a sweet spot.
Godrej Consumer Products: Among the top 3 players in its existing product category, and likely pickup in consumer demand. The stock is currently trading at an undemanding valuation of 24x FY23E P/E.
Godrej Agrovet: Expected pullback in palm oil margin, benefits from the pipeline of new product launches in crop protection, and stable margin in animal feed on cost-cutting initiatives
Godrej Industries is trading at ~55 percent discount to its stake/investment in these 3 companies. However, adjusted discount comes out to be ~60 percent considering GI’s investments and its other core businesses’ valuation
HDFC Bank - BUY
HDFC has witnessed resilient loan growth delivery amid anemic system-wide growth. Embedded franchise strengths of diversified retail asset franchise, multiple granular fee streams, solid deposit profile, seasoned mechanisms for leveraging ETB customers and acquire better-profiled NTB customers and robust underwriting & dynamic risk management ensures that
HDFC Bank delivers consistent, capital-efficient and profitable growth. YES Securities expects NIM to gradually improve henceforth with strengthening pricing power for both credit and deposits, and shift in incremental loan mix towards retail.
Core fee growth has been resilient with impressive velocity in retail fee stream, such as payments/cards, loans/liabilities related and third-party distribution.
The current valuation of 2.3x P/ABV and 12.5x P/E on FY22 basis for the core bank is attractive.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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