Despite headwinds, the market managed to register more than 7 percent gains since last August, and considering the evolving environment, now seems to be marching towards record high levels.
If we see the recovery from June, when the market had broken its 52-week low, the rally stands at more than 16 percent, which has a been one-way rally so far.
Experts are hopeful that the third burst of market recovery, which we have seen after record high levels in January and April, will endure.
In the changing environment, signs of easing inflation, likely softening of the central bank’s stance on interest rates, a mood upswing at FII desks —these are all in line with better than expected earnings in the June FY23 quarter.
In fact, once the dust of uncertainty settles, markets are expected to hit new highs in the coming months. The one caveat may be the China-Taiwan issue. If that does not get escalated, then the market’s northward journey is definitely anticipated, experts said.
Though the sectoral trend over the last one year is mixed, every sector has participated in the last two months of recovery.
"At CMP (current market price), the Nifty is trading at 22.1x FY23E and 18.6x FY24E, below its long-term average. Due to ongoing uncertainty and global challenges, we expect Nifty to trade in the range of 16x-18x FY24E in 1HFY23,’’ said Nishant Srivastava, Head, Retail Broking and Distribution, Reliance Securities.
But going ahead, he believes the strong economic rebound, normalised commodity prices, inflation within the target range, and better visibility by 2HFY23 would transform Nifty valuation to close to the historical average.
Srivastava’s FY23 target for the Nifty is 19,000 at 20x FY24E EPS. Reliance Securities expects FII inflows to return by end of 1HFY23, while DII investments would continue in FY23, and equities would maintain their outperformance with double-digit returns.
FIIs have bought more than Rs 14,800 crore worth of shares in August, the first month of net buying in the last 11 months, and the biggest monthly net purchases since February 2021.
Given the confidence in market trends, experts advised buying 11 stocks which could deliver about 20 percent returns by next August:
Expert: Vikram Kasat, Head Advisory at Prabhudas Lilladher
Narayana Hrudayalaya reported highest ever profitability in Q1 from its India business, and Cayman profitability should recover from Q2. We expect EBITDA CAGR of 21 percent over FY22-24E.
Despite capex intensity going up, RoE / RoCE will remain healthy at around 25 percent in FY24. We maintain ‘buy’ with a price target of Rs 810 per share (20x FY24E EV/EBITDA for India biz +16x EV/EBITDA for Cayman hospitals). EBITDA is earnings before interest, tax, depreciation and amortisation, while RoE is return on equity, and RoCE is return on capital employed.
We believe the turnaround is complete and the company is back on the growth track. Trades at 14x/8x of our FY23/FY24 EPS. Valuations are undemanding for a business that commands free cash flow yield of around 14-17 percent over FY23-FY24E.
Additionally, the National Education Policy represents an option value in the business and can result in sharp re-rating. We retain buy with a target of Rs 185 (earlier Rs 156).
Expert: Sonam Srivastava, Founder, Wright Research
Tata Elxsi is not a traditional tech stock. It is a new-age product development company working closely with some of the global majors in the auto sector in the electric vehicle (EV) space.
Tata Elxsi addresses the engineering and research and development segment, and global innovation companies depend on companies like Tata Elxsi to do the backend work.
While other tech companies have struggled in the last quarter, Tata Elxsi has delivered 15.45 percent EPS growth and posted a lifetime-high revenue of Rs 736.21 crore.
The company focuses on four key verticals: transportation, media, telecom, and healthcare. Revenue and stock price growth is expected to continue through the coming year.
Varun Beverages
Varun Beverages is a franchisee bottler of carbonated and non-carbonated beverages sold under trademarks owned by PepsiCo. This FMCG company has grown its revenue 75.08 percent last quarter.
With inflationary pressures cooling off and discretionary spends coming back, Varun beverages is expected to perform well. It has acquired new territories and plans to expand distribution by venturing into underpenetrated territories.
The expected CAGR for the company next year is more than 20 percent, which makes it an excellent buy in the current market scenario.
Indian Hotels has had a fantastic run since last year, which will continue into the next year. The company posted 33 percent revenue growth and maintained a 30 percent EBIDTA margin. Post-Covid reopening favours the hotel industry, and the festive season will make the stock even more enjoyable.
The company's business model is shifting from asset-heavy to 50 percent owned and leased business, and 50 percent fee-based business. They have also added new companies, which are high-margin businesses that will make the next year positive for revenues and margin expansion.
Expert: Nishant Srivastava, Head, Retail Broking and Distribution, Reliance Securities
We believe L&T deserves a higher valuation, given the revival of order-flows in large multilateral projects, uptick in the investment cycle, and the healthy performance of its subsidiaries.
Considering the healthy guidance, a strong order book, along with order prospects of Rs 7.6 trillion, we have a buy rating on L&T, with a SOTP-based target price of Rs 2,125.
We expect MSIL's domestic volume to witness 20 percent growth in FY23E. In exports, we estimate a healthy 17 percent CAGR over FY22-FY24E, on the back of better sales through the Toyota tie up.
In view of the strong products basket, healthy balance sheet, strong return ratios, and likely margin improvement ahead, we have a buy rating on MSIL with a target price of Rs 9,700, valuing the stock at a 27x P/E multiple.
We believe that the benefits of softer commodity costs, rural revival, and overall economic recovery would play out gradually in 2HFY23E, which would support the valuations going forward.
In view of the long-term positive trend of the tractor industry, likely synergy benefit from Kubota, a healthy balance sheet, strong positive cash flow, healthy return ratios, and attractive valuation, we have a buy rating on Escorts with target price of Rs 2,250, valuing the stock at an unrevised P/E of 21x FY24E EPS.
Expert: Devarsh Vakil, Deputy Head of Retail Research, HDFC Securities
Incorporated in 1983, Hindustan Oil Exploration Company (HOEC) is engaged in oil exploration and production of crude oil and natural gas in on-shore and off-shore fields.
HOEC was the first mid-size private company in India to enter into oil and gas exploration. Its operational activities commenced in 1991. HOEC provides geological and geophysical services relating to the exploration of oil and natural gas, and other field services. The company has built a strong portfolio of on-shore and off-shore fields in India.
Going ahead, we think existing investors can hold and new investors can buy the stock and add on dips of Rs 156-152 for the bull case fair value of Rs 214 over the next two quarters. We expect HOEC revenue could grow more than two fold in FY23, and 36 percent in FY24.
Can Fin Homes (CFHL) is a well-established player in the affordable housing finance segment. The company has a quality portfolio comprising salaried customers with low ticket size loans. CFHL has impeccable track record of delivering consistent and strong growth while maintaining best-in-class asset quality. The sovereign holding (Canara Bank as promoter) provides access to low-cost funding opportunities.
With a strong balance sheet, the company has the opportunity to increase its market share as well as scale up its presence in existing and newer geographies.
There has been a strong revival in the real estate sector as evident from improved sales momentum and new offerings.
CFHL remains well placed to capture rising opportunities in the Bangalore real estate market (around 20 percent of assets under management).
Favourable Indian demographics, low mortgage penetration, and government support are the key long term positives for the sector. Any slowdown in the real estate sector, promoters’ exit, and rising interest rates are key risks for the company.
We feel investors can buy Can Fin Homes on dips of Rs 634-630 (2.1x FY24 adjusted book value), and add more on dips of Rs 574-570 (1.9x FY24 adjusted book value) for the bull case fair value of Rs 754 (2.5x FY24 ABV) over the next two quarters.
AVT Natural Products (AVT) was incorporated in 1994 by the AV Thomas group to diversify its traditional plantation business.
AVT is a leading manufacturer of plant-based extracts and natural ingredient-based solutions for the food, beverage, animal nutrition, and nutraceutical industries of the world.
Founded in 1925 as a plantation company, AVT is a family-owned, professionally-managed group, with headquarters in Chennai.
The group’s business interests include plantations (tea, rubber, coffee, spices), consumer products (tea, coffee, and spices), leather goods, medical appliances (manufactures and markets Rusch Foley catheters and distributes several other products in India), biotech (plant tissue culture), commodity exports (spices, natural rubber, coir products and food items), logistics (licensed custom agents, air and sea cargo agents, and warehousing), trading and agencies (building materials, rubber chemicals, etc.), and Food and Feed Ingredients (AVT Natural Products, AVT Integrated Spice Project and AVT McCormick Ingredients).
The group’s products have a fair brand value in south India and the family is respected for its business acumen. AVT has good credibility due to its long presence in the region and industry.
We think the bull case fair value is Rs 124 (19.5x FY24E EPS). Investors can buy the stock in Rs 90-96 band (14.6x FY24E EPS) and add more on dips of Rs 85-81 (13.0x FY24E EPS) band.
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