Arun Thukral
The market has witnessed volatility in the past few months erasing the gains made in the last one year. In the near term, issues that have led to the correction have not yet been abated.
The markets would be keenly watching (a) How China would handle the trade war with the US, (b) Crude oil supply scenario, which would be clear after the sanctions on Iran are imposed by 1st week of Nov.’18, (c) Liquidity issues faced by the market in wake of IL&FS saga, etc.
The outcome of these events would decide the course of the markets in the near term.
Overall, though the markets have corrected by more than 10 percent from all-time highs made recently, the business environment continues to be strong, the corporates (barring few, viz. NBFCs which would be impacted due to liquidity issues in the near term) are expected to deliver robust growth driven by consumption-led demand.
The Q2FY19 earnings season so far has been in line with the expectations. Strong results declared by IT companies, upbeat numbers from RIL and robust growth reported by the FMCG companies are indicative of sustained demand environment.
Select corporate banks and few NBFCs (despite recent liquidity crunch in the system) have also reported good numbers.
Three consecutive good monsoons coupled with the recent announcement of higher MSPs are expected to improve rural spending power and thereby increase rural consumption. The rural consumption, growing at double the pace of urban segment is driving the growth.
Spends by the government of India on building better infrastructure, amenities, etc. have been improving. Non-food credit growth is off its lows and total credit off-take as of October 12, is up 4.5% driven by personal loans, housing, and non-food credit.
Retail participation in equities has shown an increasing trend despite a correction in equity markets and outflows by FIIs. The CYTD domestic inflows stood at Rs 1,06,852 crore, while FII outflows stood at Rs 40,602 crore. The flow into systematic investment plans is also stable and seems to be sticky in nature.
Going forward, we have a political heavy calendar, starting with 5 state elections in November-December 2018 and general elections somewhere in April-May 2019.
The markets are expected to be rangebound till clarity emerges on the political front but this is going to be a never before opportunity for investors, irrespective of which party forms the government in May 2019.
Against this backdrop, and the opportunity that the markets present at this time, here is a list of some growth-oriented stocks backed by proven management, that can be invested into:
• Ashok Leyland: Second largest CV manufacturer, improving CV cycle augurs well for Ashok Leyland which is expanding product portfolio to meet the demand from all the segments.
• Bajaj Finance: Best franchise among asset finance NBFCs with sustained earning performance and steady asset quality supported by positive ALM and strong balance sheet liquidity.
• Cipla: US sales are expected to improve with ramp up in limited competition products; domestic franchise remains strong.
• Hindustan Unilever: Stable demand outlook, growing rural market ahead of urban at 1.25x in terms of volumes provides sufficient earnings visibility.
• ICICI Bank: Amongst the largest private banks in the country with strengthening liability franchise; moderation in credit costs and leadership change to drive growth forward.
• L&T Infotech: Ramp up of steadily secured large deals, mining of new logos and healthy deal pipeline to help sustain the momentum over FY20. Underutilised margin levers and INR depreciation to drive margin expansion.
• Minda Industries: A big beneficiary of upcoming regulations and premiumization of 2W & PV segment along with rising demand.
• Mold-Tek Packaging: Improved volume outlook from Paints and Food & FMCG customers with growing pie of F&F aiding strong margin delivery.
• Reliance Industries: Retail business and Jio-two the major factors of growth, the introduction of GigaFiber and acquisition of Hathway and Den to be the catalysts. Petchem business to continue to grow at a steady pace.
• Steel Strip Wheels: Improving CV demand to help higher utilization of CV lines thus shifting the volume mix in favor of heavier & highly profitable wheels.
• Titan Company: Growth momentum to sustain led by growing market share and new product launches to fill product portfolio gaps.
• Trident: Improving capacity utilization following restocking by US retailers augurs well for the company. Operating leverage help improve margins.
The author is MD & CEO, Axis Securities.
Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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