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Last Updated : Mar 06, 2019 10:08 AM IST | Source: Moneycontrol.com

'Volatility to persist till elections; keep a stock-specific approach in mid & smallcaps'

At the current juncture, investors can start looking to build a strong portfolio with quality names in largecaps, midcaps and smallcaps

Moneycontrol Contributor @moneycontrolcom
 
 
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Akash Jain

The domestic bourses have turned volatile in the last week amidst ongoing tensions between India and Pakistan. Now all eyes would be on global cues (oil prices, currency movement, relations between economic giants) and domestic cues amidst ongoing tussle between India and Pakistan.

Any signs of de-escalation of tensions will instil confidence among investors. Globally, improving the relationship between the US and China will boost global sentiment amidst the slowdown in China's economic growth. Clarity on Brexit would also act as a key trigger for investor interest.

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We believe domestic bourses would remain volatile till general elections 2019 results are out. At the current juncture, investors can start looking to build a strong portfolio with quality names in largecaps, midcaps and smallcaps.

We believe the Indian equity markets are in a structural bull run as the benefits of implementation of GST, Insolvency and Bankruptcy Code, digitization, thrust on Make in India and improving relations with key foreign countries would augur well for the economy in the long run.

The strategy at present should be to invest in a phased manner only in companies that are not connected to any political party, have a robust business model, strong earnings and cashflow visibility, low debt and are backed by quality management especially on the corporate governance front.

Considering the above factors, investors can have a stock specific approach in midcaps and smallcaps as there are many companies that are trading at a discount of 50-70 percent to their peak price in early 2018.

On a safer side, we would suggest investors to look at consumption stocks, top quality pharma companies, NBFCs having strong parentage, auto and auto ancillary stocks, gas companies, PSU banks (looking better after the clean-up of NPA mess, progress made under IBC), IT sector and private insurance companies at the current moment.

Here are two picks which could give double-digit return:

Cummins India: Buy | Target Price: Rs 810 | Upside: 15 percent

We like the company as it would be a major beneficiary of capex revival in the country. Cummins is a market leader across industrial, PowerGen and Service support (distribution business).

The company delivered strong Q3FY19 results. The company witnessed 8.7 percent growth YoY in its Q3 net profit at Rs 187.1 crore. Revenue witnessed a rise of 11 percent at Rs 1,503.8 crore. Operating profit rose 15 percent.

The company has a strong balance sheet along with robust operating cashflows and a decent return on equity (RoE).

At CMP, the stock trades at a P/E of 27x at nine-month of FY19 annualised EPS of Rs 26. We recommend a buy with a target price of Rs 810 (P/E of 27x at estimated FY20 EPS of Rs 30).

Minda Corporation: Buy | Target Price: Rs 175 | Upside: 17 percent

We recently attended Minda Corp analyst meet and were impressed by the company’s product mix and believe that it is well placed to tap the opportunity. The company had successfully completed a QIP issue in 2017 (raised Rs 310 crore) to acquire companies that offer good synergies and complement the company in its product portfolio.

The company is a market leader in India for locksets in 2W segment (more than 30 percent market share), and for wiring harness in commercial vehicle, 2W and tractor segment in India (more than 30 percent market share each).

It is also a market leader for instrument clusters, commercial vehicle segment and instrument clusters in 3W and tractor segment (more than 60 percent market share each).

At CMP of Rs  150, the stock trades at a P/E of 22x at FY18 EPS of Rs 6.8. We recommend a buy with a target price of Rs 180 (18x at estimated FY20 EPS of Rs 10).

The author is Vice President - Equity Research at Ajcon Global Services.

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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First Published on Mar 6, 2019 10:08 am
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