As economies around the world, including India, are opening up in June the benchmark indices are gaining momentum. But the upside seems to be capped because of the rising numbers of cases of COVID-19.
Experts believe we will have to learn to live with the virus until there is a vaccine so the gradual re-opening of economies across the world will definitely support growth.
"We are definitely in a new bull market. Bull markets always have to climb a wall of worry, every day brings a new worry," said Mark Mobius, Founder of Mobius Capital Partners in an interview to CNBC-TV18.
"India's recovery from the bottom is a good performance. Recovery possibilities are much greater for the emerging economies," Mobius said, adding India and China are at the top of the pecking order in his portfolio.
Given the hope of recovery in the second half of FY21, analysts largely continue to advise buying quality stocks.
"In recent times, trend of buying of quality stocks has become stronger, and appreciable price performance is seen mainly in quality stocks. Quality is not something that is confined to any particular market-cap. Since 2017-18, there is a perceptible change in the way equity investments are made, that is, there is an inherent focus on quality stocks," Bhavesh Sanghvi, Chief Executive Officer at Emkay Wealth Management.
After March quarter earnings and recent correction in stock prices, many stocks got an upgrade in rating from brokerages. Moneycontrol has compiled a list of stocks that were upgraded by various brokerage houses in June:
Indian operations delivered strong performance with an all-round beat to estimates and recorded a near peak output even during the lockdown. Despite a 9 percent YoY decline in LME Aluminum prices, the aluminum division's EBITDA rose 3 percent, driven by lower input costs.
"Hindalco is trading at 4.7x our FY22 EV/EBITDA despite a 10/6 percent EBITDA cut for FY21/22E. We believe that COVID-19 related disruptions are already factored in depressed FY21 earnings," said Emkay Global which upgraded the stock to buy, with a target of Rs 187 (Rs 221 earlier) as it rolled forward to March 2022. Key risks are the second wave of COVID-19 and US-China friction, it added.
"Dixon has multiple growth options including upcoming opportunities in electronic manufacturing-all of which is not captured in near term earnings in FY20-22E. Hence, we increase the multiple premia by 10 percent to 38x(from 35x) FY22E, and raised target price to Rs 6,100, and upgrade the stock to buy," said Dolat Capital, adding Q4FY20 numbers were ahead of its estimates, with strong performance in consumer electronics segments. Its target price implies 23.2 percent potential upside from current levels.
Given new customer acquisitions, deepening business with existing customers, and increase in the original design manufacturer (ODM) mix, the brokerage expects Dixon's sales/EPS to grow at a CAGR of 19/25 percent over FY20-22.
Global brokerage house CLSA has upgraded its rating on Hindustan Unilever to buy from outperform and also raised target price to Rs 2,600 from Rs 2,500 per share earlier.
Not only HUL, but also Nestle and Godrej Consumer Products are positioned to benefit from COVID-19 crisis.
"We see four long-term trends emerging, which are - Traditional hygiene business should show per-capita consumption expansion; $750 million of nascent categories with low penetration should benefit; Ayurveda and packaged foods including cereals should benefit; and out-of-home consumption offerings should be hindered.
"TeamLease's general staffing business continues to be on a strong footing. Going ahead, a revival in volume growth & margin improvement would lead to improved FY22E performance. The company is taking initiatives to improve margins by cutting low margin telecom contracts, reducing core employees, improving PBT growth. In addition, the company’s cashflow is expected to improve led by lower tax outgo and efficient working capital management," said ICICI Direct which upgraded the stock from hold to buy with a revised target price of Rs 2,000.
"Despite the near-term dimmer abrasives and electro-minerals outlook, the growth momentum in engineered ceramics and metallised cylinders is good. We expect margins to improve over FY20-22, and drive earnings growth," said Anand Rathi which upgraded its rating on the stock to a buy and revised target price to Rs 303 (from Rs 244 earlier).
"Titan's Q4FY20 revenue was in line, but operational performance was better than our estimates. The company was able to report around 16.5 percent growth in Jewellery business during January and February, however, lockdown in March resulted in revenue decline," said Dolat Capital which broadly revised its FY21 estimates at Rs 19.8 and maintained FY22 EPS estimates Rs 26.9.
The brokerage updated its rating on the stock to buy, with target of Rs 1,293.
"Gujarat Gas's Q4FY20 EBITDA and PAT significantly beat our estimates due to continued strong volume growth despite the nation-wide lockdown. Margins continued to be robust, although largely as expected," said JM Financial which sharply raised its DCF-based target to Rs 330 per share and upgraded its rating to buy as it expects company's volume growth and pricing power to sustain going forward.
Despite the near-term hit to volumes due to COVID-19, the brokerage sharply raised its estimates for FY22 and beyond due to: a) increase in our volume estimate, given the sharp rise in gas use by industrial consumers due to NGT's March 6, 2019 order banning the use of coal-based gasifiers in Morbi and b) strengthening margin profile due to improved competitiveness of gas led by lower domestic gas and spot LNG prices.
"FY21 revenue are estimated to be impacted adversely with significant loss in Q1 that is peak season for RAC business. Over the long term, however, GOI's push for Atmanirbhar Bharat should act as a big enabler for RAC industry as electronics imports constitute 3rd largest segment in India. Even recent shift to China+1 strategy taking place from domestic OEMs to reduce lead time to source RACs should be a big boost for players like AEIL," said SPA Securities.
In the light of improved business prospects for domestic players over the longer horizon, the brokerage assigned higher multiple to earnings of 25x FY22E EPS and derived target of Rs 1,700, upgrading the stock to buy from hold earlier.
ICICI Direct believes Polycab's performance has remained robust in FY20 despite various challenges.
"Strong balance sheet condition, market leadership position in wire & cable business and profitable growth in FMEG segment would help drive future growth of the company," said the brokerage which upgraded its rating on the stock from hold to buy with revised target price of Rs 895 per share.
"With the acquisition of Heinz India brands, Zydus Wellness has created goodwill of Rs 3,900 crore. With huge goodwill on books, return ratios would remain depressed for the next three to five years. However, we believe the company would be able to grow the earnings faster in this period with a repayment of Rs 1,500 crore debt and substantial reduction in interest," said ICICI Direct which upgraded the stock from reduce to buy with a revised target price of Rs 1,530 per share.
"We expect the ad outlook to remain challenging in H1FY21E (already on a lower base) and have incorporated earnings cut in our estimates accordingly. The stock has corrected sharply while it prices in more than the negatives. One key attractive feature of Jagran has been strong distribution to shareholders in the form of dividend and buyback. Even in a rather weak FY20, total distribution of Rs 230 crore (around 19 percent of the current market cap) was made," ICICI Direct said.
"With buyback tax benefits now done away with, we expect Jagran to distribute through dividend (expected yield of 9 percent and 12.5 percent in FY21 and FY22, respectively). Therefore, we upgrade the stock from hold to buy with a revised target price of Rs 55," it added.
Yes Securities upgraded its rating on the stock from add to buy with a 12-month target of Rs 577.
"Steep stock price fall and consequent valuation de-rating (1.6x FY22 P/ABV, without factoring capital raise) discounts FY21 headwinds but doesn't capture a sharp RoA/RoE recovery in FY22," said the brokerage which expects much lower liquidity and capital related challenges for CreditAccess versus peers.
ICICI Direct believes the complete lockdown would hit the entire supply chain of the unitary cooling products (UCP) segment (contributes around 45 percent of sales) and derail Q1FY21 segment revenue.
"On the other hand, the EMPS business is also likely to be hit by a delay in project execution in the Middle East and India due to lockdown situation across operating geographies. However, we believe Voltas being a market leader in the cooling product segment would recoup sales as and when economic activity normalises in the coming future," said the brokerage which likes Voltas for its strong brand recall and healthy balance sheet, which would cushion the company from any adverse situations.
The brokerage upgraded its rating on the stock from hold to buy with a revised target price of Rs 635 per share.
"On the continued weak TBK and RMC and the lockdown, Prism Johnson's results were subdued, revenue/EBITDA/PAT falling 18/ 21/96 percent. The cement division did well; the other segments dragged. The stock has fallen considerably in the last few months," said Anand Rathi which believes the stock factored in a fair valuation for cement, with negligible contributions from the other two businesses to our sum-of-parts valuation.
The brokerage upgraded its rating on the stock to a buy, with a lower target of Rs 46 (earlier Rs 48).
"Gujarat Pipavav Port (GPPV) reported subdued Q4FY20 results as volume was impacted by COVID-19 concerns. This was partially offset by better realization and a fall in operating expenses, which led to better EBITDA margins of 62 percent (+676 bps YoY)," said Emkay Global which cut its earnings estimates for FY21/22 to factor in a fall in volumes and evacuation issues during H1FY21.
Accordingly, the brokerage lowered its SoTP-based target to Rs 84. However, it now upgraded the stock to buy on attractive valuation from a recent correction.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
