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Value picks: Here are 12 names that experts are betting on for 2020

Indian markets have rallied over 10 percent so far in the year and experts feel that the rally could extend by 5-10 percent in 2020

December 19, 2019 / 09:40 AM IST
 
 
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The S&P BSE Sensex hit a fresh record high of 41,553 while the Nifty50 surpassed 12,200 to hit a fresh high of 12,221 on December 18, but the rally is here to stay even if someone plans to invest at current levels.


Indian markets have rallied over 10 percent so far in 2019 and experts feel that the rally could extend another 5-10 percent in 2020, and investors should use dips to get into quality stocks, they say.

“Investment strategy at all-time highs should be optimistic yet tempered with cautiousness. We recommend utilizing the dips during some minor corrections,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

Experts feel that the momentum could continue till Budget and beyond if  earnings recovery supports the momentum. The global cues also remain strong which could add further momentum to the rally and push benchmark indices to hit fresh record highs, suggest experts

“This market momentum can even jump as the investment environment improves with lower tax, policy changes and stimulus measures to boost the economy, which are expected to provide upside to earnings growth. There is a lot of expectation from the Budget, including measures to increase participation in equity markets, like a cut in capital gains tax,” Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.

“At the same time, a good trade deal between US-China & Brexit and a flattish US Fed rate in CY2020 will lower the risk averseness of the global market and attract more inflows into markets like India. We have a one-year target of 12,600 for Nifty50 with upside risk to Q3 results,” he said.

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Here is a list of top 12 stocks handpicked by experts that investors could look at for the year 2020:

Expert: Vinod Nair, Head of Research at Geojit Financial Services

HDFC Bank

The bank’s strong network helped in sustaining growth in advances and deposits. It added 211 banking outlets to reach a total of 5,314 as on September 30, 2019, of which 52 percent are in semi-urban and rural areas.

In Q2FY20, the loans and advances growth remained strong at +19.5% YoY, with domestic retail loans contributing 52 percent (+14.7% YoY) and domestic wholesale loans contributing 48 percent (+27.4% YoY).

The growth in deposits was supported by a focus on granular accounts. On the asset quality front, the annualised slippage ratio improved 10bps YoY and 30bps QoQ to 1.7 percent and the net NPA ratio decreased 1bps QoQ to 0.42 percent during the quarter.

SBI Life Insurance

In Q2FY20, Gross written premium grew 33.3 percent on a YoY basis driven by the new business and renewal premiums which grew 33.8 percent and 32.8 percent on a YoY basis respectively.

For H1FY20, a new business margin, calculated as the value of the new business (VONB), which measures the profitability of new business underwritten during the period, grew 33 percent YoY to Rs 9,400cr.

In H1FY20, SBI Life’s market share increased 200bps YoY to 21.8 percent in terms of NBP (new business premium) among the private insurers and AUM increased 22.7 percent on a YoY basis to Rs. 154,760cr.

Aarti Industries

Aarti Industries (ARTO) is a global leader in Benzene based derivative products. The company has a diversified product portfolio with end-users in pharma, agrochemicals, specialty polymers, paints & pigments.

ARTO will continue to benefit from backward integration, expansion of product portfolio and shift in volume due to the Chinese shut down in the medium term.

Going ahead, management focus on value-added products, execution of multi-year contracts and revival in volumes from Specialty Chemicals & Pharma segments will drive profitability. We have an accumulate rating on the stock, given strong earning visibility of 20 percent CAGR over FY19-21E and RoE 21 percent.

Expert: Ritesh Asher – Chief Strategy Officer (CSO) at KIFS Trade Capital

HDFC Life:

Among private players, HDFC Life is the biggest player as it contributes 25.1 percent market share in the private sectors as it is also in lead among other listed insurance companies showing 86 percent gains from its issue price of Rs 290 on November 17, 2017.

The Net worth is increasing at the rate of 18 percent on a YoY basis, to its advantage insurance sector remains underpenetrated gives an immense opportunity for the company to grow in the future with the largest customer base compared to its peer group.

Avenue Supermart (DMART):

D-Mart operated by Avenue Supermarts (ASL) is cluster-based ownership model key profitable growth catalyst D-Mart predominantly operates on an ownership model rather than a lease model (85-90% owned).

The company reported good numbers in EBITA as it rose 23 percent on a YoY basis. EPS jumped from 3.85 to 15 (FY15-19), EV jumped 135 percent from (FY17-19) at 91,957cr and ROCE from 10.77 percent to 25 percent (FY15-19). Investors are advised to follow buy on dips strategy.

HDFC AMC:

This stock continues to remain the market leader in total AUM, equity AUM, SIP book, revenue & PAT this makes the stock eligible for superior valuation due to strong positioning & superior earnings profile.

Asian Paints:

Asian Paints is one of the leaders in the market share in the paint industry with strong industrial and international business share.

The company delivered a strong set of numbers where the volume growth was seen up by 24 percent on a YoY basis which was supported by a low base, festive timing shift, and the corporate tax cut.

The growth momentum is expected to sustain. This stock is available at a very attractive valuation of lower PE and higher EPS & ROCE compared to its peer group.

Expert: Mustafa Nadeem, CEO, Epic Research

SBI:

SBI is our one pick from bank space. The valuations are at below historical average and with improved asset quality, we expect NIM to show a marginal improvement in Q4FY20. We expect SBI to move towards 385.

JSW Steel:

JSW Steel from metals space is one of the top picks. With demand seen picking up across in infrastructure and automobiles, we expect JSW Steel to improve its topline in FY21. We have a target of 295 for JSW Steel.

Expert: Jitendra Upadhyay, Fundamental Analyst, Bonanza Portfolio Ltd

ICICI Bank

The stock trades at 1.8x FY21 core book and we perceive further re-rating potential as the market gains confidence in earnings sustainability.

Axis Bank:

Axis Bank is one of the largest private sector banks in India with 4,284 branches. It has raised funds for the 2nd time within the last 2 years (QIP of Rs 12,500 cr).

Due to this fundraiser, the book will now expand which makes valuation slightly more attractive. Capital is sufficient for this Bank with CRAR at 16.1 percent, and Tier 1 of 12.9 percent were enough to boost loan growth in future

The new MD & CEO – who has unveiled the bank’s Vision FY22 focused on growth, profitability, and sustainability. We expect the Bank to achieve an RoE of over 18 percent by FY22.

The asset quality and strategic growth plans from the new management give confidence to us on Axis Bank’s future.

Going forward, strengthening of balance sheet and healthy margins will be the key along with NCLT recovery. The earnings of the bank will increase. Axis Bank is currently trading at 2.4x BVPS FY20e

Jubilant FoodWorks:

Investment in data science to improve customer service and efficiencies, railway ordering, innovations and focus on delivering value to the customer will help maintain its dominant position in the space.

It is also to be noted that Jubilant has been one of the biggest beneficiaries of corporate tax rate reduction which gives it room for spending on Store guidance.

The stock trades at 43x FY21E EPS. We retain our BUY rating with a target price of Rs1733 (based on P/E multiple of 47x FY21 EPS).

Disclaimer: The views and investment tips expressed by investment 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.
Kshitij Anand is the Editor Markets at Moneycontrol.

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