After a 13 percent rally since September 20, the market has largely remained rangebound in the month of November as the tussle between bulls and bears to take control over Dalal Street intensified.
The Sensex made an all-time high of 40,857.73, up 498 points intraday on November 25, while the Nifty50 was up 159 points at 12,073.5 at the time of publishing this copy.
On the stock-specific front, the volatility has been high, which has kept traders on their toes. They now await the next set of measures from the government which will fuel the next leg of the rally.
"We had a one-year target of 12,600 for Nifty50 which we are maintaining. We foresee some consolidation in the short-term due to the premium valuation in largecaps and weak macros. We are also more positive on mid & smallcaps compared to the largecaps given the reasonable valuation of 15x on one year forward P/E and improvement in the strength of balance sheet with better cashflow as per second-quarter result," Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.
In the last one month market's top 100 stocks have rallied 3 percent while midcaps have outperformed frontliners with a 5 percent return. Nair expects the midcaps to continue outperforming in the long -term as risk-taking ability & investment environment in equities has improved.
In such rangebound trade, experts advised focusing more on stock selection and trade management. Here is the list of 10 stocks which could return 14-24 percent in next 10-12 months:
Brokerage: Reliance Securities
Blue Star: Buy | Target: Rs 941 | Return: 15 percent
Blue Star is looking at newer products and recently entered into water purifier, air purifier and air cooler markets. It has reported a strong performance in Q2FY20 with its adjusted PAT growing 78 percent YoY to Rs 39.6 crore led by a healthy 21 percent YoY growth in revenue, higher other income and lower interest.
With an 11 percent YoY growth in order inflow to Rs 790 crore during the quarter, the company's order book rose 33 percent YoY to Rs 2,940 crore as of Q2FY20-end.
Brokerage: SMC Global
Marico: Buy | Target: Rs 434 | Return: 22 percent
The company will continue to drive sustained profitable volume-led growth over the medium term, through its focus on strengthening the franchise in the core categories and driving the new engines of growth towards gaining critical mass. Over the medium term, the company retains the target of 8-10 percent volume growth and healthy market share gains in the India business.
Thus it is expected that the stock will see a price target of Rs 434 in 8-10 months time frame on an expected PE multiple of 45 times and FY21E EPS of Rs 9.65.
Larsen & Toubro Infotech: Buy | Target: Rs 1,985 | Return: 17 percent
With a strong quarter on revenue execution front, receding of client-specific issues, deal winning momentum and a better outlook for the banking segment gives a belief of improving trajectory ahead. The management of the company believes that high growth in digital will continue as customers leverage new/exponential technologies.
The company has strong domain expertise derived from its parentage. Thus, we expect the stock to see a price target of Rs 1,985 in 8 to 10 month’s time frame on a one year expected P/E of 19.91x and FY21 (E) earnings of Rs 99.69.
Brokerage: Axis Securities
Sundaram Finance: Buy | Target: Rs 1,922 | Return: 18 percent
Sundaram Finance's conservative approach to building a healthy vehicle finance book has resulted in a consistent performance. Subsidiaries profitability was mixed with muted Insurance/AMC business and slightly better HF business. The overall slowdown in the auto sector could be an overhang on the stock for the next couple of quarters. We have lowered AUM to around 12 percent CAGR over FY19-FY21E.
Gross NPAs/net NPAs have also been tweaked marginally upwards. We believe stable asset quality and lower tax rate to support superior ROA over FY19-FY21E. We maintain buy on the stock with a SOTP target price of Rs 1,922.
Brokerage: ICICI Securities
Abbott India: Buy | Target: Rs 14,600 | Return: 16 percent
The domestic pharma industry is expected to grow in the range of 9-11 percent per annum. Issues such as NLEM and other regulatory aspects are mostly in the price. On the flip side, the looming threat of Jan Aushadhi and trade generics are some headwinds at this juncture.
However, we continue to believe in Abbott’s strong growth track in power brands and the capability of new launches on a fairly consistent basis (100 products in the last 10 years).
We expect revenues, EBITDA and PAT to grow at around 13 percent, 21 percent and 25 percent CAGR, respectively, in FY19-22E. We arrive at a target price of Rs 14,600 based on 35x FY22 EPS of Rs 417.
Brokerage: Morgan Stanley
DLF: Buy | Target: Rs 269 | Return: 24 percent
DLF is now our top pick in the industry. The company has a balanced portfolio of development and yielding assets. Power to monetise its land bank is on the rise, led by neighbourhood development. However, it remains predominantly leveraged to the NCR region. Our updated model shows reasonable valuation, and we see comfort in asset-based valuation.
We have upgraded the stock to overweight from equal-weight earlier, with a new price target of Rs 269 (target discount to NAV of 25 percent, narrowed from 30 percent), implying 24 percent total return potential from current levels.
Brokerage: JM Financial
HDFC: Buy | Target: Rs 2,700 | Return: 21 percent
HDFC is a compelling buy opportunity given its superior liability franchise with the largest deposit base within the NBFC space. It is also best placed to benefit from lower rates and normalisation of credit spreads going ahead (130bps credit spreads on 3-year paper versus 90bps two years ago) and is poised to maintain retail home loan market share while selectively increasing market share in the corporate segment.
We expect AUM CAGR of 13 percent over FY19-21E with earnings CAGR of 17 percent. HDFC is our top pick in the HFC space and a compelling buy with a target price of Rs 2,700.
Brokerage: BP Equities
IndusInd Bank: Buy | Target: Rs 1,703 | Return: 18 percent
IndusInd bank being an established player in the banking domain has been witnessing a steady operational performance led by healthy NII growth and other income growth. With the downside risk limited coupled with only 2 percent of loan book being exposed to stressed accounts (media, diversified and housing finance), a sense of comfort is derived. All these factors contribute to our positive view of the ban.
On the valuation front, we recommend a buy rating on the bank assigning a P/BV multiple of 2.9x of FY21 book value implying a target price of Rs 1,703.
Brokerage: LKP Securities
ICICI Bank: Buy | Target: Rs 598 | Return: 20 percent
We foresee a big turnaround in the earnings on the back of lower credit cost of 1.5 percent in FY20e and 1 percent in longer-term, gradual margin improvement and pickup in the loan growth. We expect ROE to improve to 15 percent in FY22e from 3.9 percent in FY19. Unlike in the past during FY15-19 where PAT had degrown at a CAGR of 22 percent, we expect PAT to grow by 141 percent in FY20e, 63 percent in FY21e and 24 percent in FY22e i.e. at a CAGR of ~70 percent over FY19-22e.
Comfortable CAR 13.2 percent and high PCR of >70 percent reduces any immediate risk of dilution. Subsidiaries are increasing in size and stature gaining market share given favourable demographics and their presence in important respective financial service space. Long-term value un-locking in subsidiaries could be immense. Balance-sheet of the bank has now strengthened remarkably over the years with a lower concentration of large borrowers, rise in granular retail loans and an increase in lending to better-rated corporates.
With strong balance-sheet, the bank is now well-placed to participate in multi-year strong credit growth. We value the bank at Rs 598 with buy rating, assigning multiple of 2.6x FY21e ABV of the bank and valuing the subsidiaries at Rs138 post 15 percent holding company discount.
Brokerage: Dolat Capital
Zee Entertainment Enterprises: Buy | Target: Rs 440 | Return: 23 percent
Zee has historically traded at around 30x 1-yr forward P/E. However, with reduced promoter stake (lesser-skin-in-the-game), Balance sheet deterioration (C&CE declines to Rs 1,500 crore as of September 2019 from peak of Rs 4,000 crore in Mar-17 and Rs 3,100/2,300 crore as of Mar18/19), structural changes in the industry with Zee lagging behind in digital (ZEE5); historic pre-crisis multiple is not warranted. We thus value Zee at 20x Sep-21E EPS with revised TP of Rs 440 (from Rs 330 @ 15x).
Zee’s improvement in cash generation and traction in digital business will the key ponderable from here-on. Improvement in either of the metrics may lead to the plausibility of further re-rating.
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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