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The S&P BSE Sensex scaled mount 30K on Wednesday to hit a fresh record high of 30,271.60 while Nifty surpassed its crucial resistance level of 9,400. A possibility of better than expected monsoon, fall in commodity prices, strong global cues, as well as the expectation of recovery in earnings growth, pushed indices higher.
The foreign institutional investors (FIIs) bought shares worth Rs 893 crore compared to domestic institutional investors who sold Rs 230 crore in Indian equity market on Wednesday, provisional data showed.
The market was preparing itself for a breakout or a breakdown if we look at last eight days of consolidation. Most experts were factoring in small correction as valuations of many stocks, as well as benchmark indices, are now trading above historical averages.
“The benchmark indices touched their new life highs as the market continues to cheer favourable set of developments such as normal monsoon, benign crude levels as well as a decent set of Q4 earnings announced so far,” Pankaj Pandey, Head-Research, ICICI Direct told moneycontrol.
“One needs to understand that the Indian economy is on a strong footing with relatively strong macroeconomic fundamentals, lower inflation/interest rate regime, a possibility of a major reform such as GST and a favourable demography supporting sustainable growth,” he said.
Markets are trading at record highs and buying stocks at highs is always a tough decision to make. If the upside potential is much higher than current levels, then it makes sense to buy stocks either on dips or even now.
The current rally is partly based on hope, but fundamentals of the economy have also improved in the meantime. Investors should look at stocks which have a strong management, diverse product range with growth opportunities, innovation, investment in capacity, as well as demand scenario.
This is clearly reflected in the March quarter earnings growth that has improved from the levels seen 3 - 4 quarters. Earnings are on the path of improvement, and investors should not lose patience in the event of periodic corrections.
“India is still a good buy on dips market and we are of the view that the country in for sustained economic and policy reforms phase,” Devarsh Vakil, Head – Advisory (Private Client Group), HDFC Securities told Moneycontrol.com.
“The Nifty has hit all-time highs on hopes of robust earnings growth ahead. Nifty earnings have not grown much in the last 4 years. Ultimately, stocks prices are the slave of earnings!’ he said.
Vakil is of the view that the market participants are hoping for over 20 percent earnings growth for the next 2 years and if earnings do not grow in FY18, equity party will be over.
We have collated a list of top ten stocks to buy which might be trading at high valuation but has growth potential for a minimum investment horizon of 1 year based on strong fundamentals:
Analyst: Devarsh Vakil, Head – Advisory (Private Client Group), HDFC Securities.
Healthcare Global (HCG) runs a chain of hospitals and clinics to provide speciality healthcare with a focus on oncology and fertility incidences in India. The company is promoted by a team of doctors and headed by Dr B S Ajai Kumar.
HDFC Securities expects strong 23 percent revenues and robust earnings CAGR over FY16-19E. Based upon 19x FY19E EV/EBITDA we have arrived at a target price of Rs348.
Quess Corp is a staffing company which is a part of Prem Watsa Group (Canada Based Entrepreneur) catering to various segments such as People & Services, Staffing, Integrated Facility management and Industrial Asset Management.
HDFC Securities expects Quess to post 23.7 percent revenue CAGR along with 180bps margin surge to 6.8 percent. The strong revenues and operating performance would lead to 43 percent PAT CAGR over FY16-19E.
Quess trades at 32.5x FY19E earnings, 19.3x EV/EBITDA and 1.1x EV/Revenues. HDFC Securities maintains their conviction and recommend buy with a target price of Rs 840, based upon 25x EV/EBITDA.
Trent is a Tata Group Enterprise which owns and manages a number of retail chains in India. It primarily operates stores across three formats: Westside, Star Bazaar and Landmark.
HDFC Securities expects strong revenues and stellar earnings CAGR over FY16-19E driven by SSSG (Same Stores Sales growth) and also from new stores. Based upon 25x EV/EBITDA, domestic brokerage firm values the stock at Rs350.
Analyst: Dinesh Rohira, Founder CEO of 5nance
Eicher Motors trades at 46 P/E which is significantly higher than the sector’s ratio. The company has consistently reported revenue growth that is reflected with 32 per cent upside in its price for last one year.
The launch of Pro-5000 series of heavy duty trucks which is in compliant with BS IV norms, a company have a diversified range of heavy truck at various price category enhancing market share and increase volume growth. Any correction in this space should be a simultaneous buy for an investor with the huge corpus.
Godrej Consumer is currently trading at P/E multiple of 50x. In last 5 year, Godrej’s revenue grew by 20 percent while its operating margin grew at 19 percent.
With strong growth in the top line coupled with robust margin control, the company has been able to maintain growth in earnings. As company focus to gear up for market-share coupled with sound macro fundamental this could be a buy and hold strategy counter for another 3-5 years.
Aditya Birla Money has delivered a 3 digit growth in its price that has built wealth for the investors in a short span of time which is less than a year. It trades at a P/E multiple of 40x and has reported a seven-fold rise in net profit.
The net total income from operation increasing by 11 percent comparing to the last quarter. After getting a nod from RBI to set up payment banks, it is expected to create a wide range of services to enable growth in income.
The impact of demonetization did not dilute the revenue for PVR and it grew at 26 percent for Q3. The recent merger of the subsidiary company is expected to create single operating entity focussed at cost competency, and with remonetisation at the regime, the increased spending on leisure coupled with a rise in household income augers well for PVR.
Despite PVR trading at a P/E level at 83x, we see the steam is left to make money from this stock. So, any correction phase should be buying signal.
Analyst: Pankaj Pandey, Head-Research, ICICI Direct
The company is poised to capture huge opportunities ahead in the infra space given its strong balance sheet position (it has managed to reduce its D/E to 0.6x in 9MFY17 vs. 1x in FY14), eyeing orders in the irrigation space from Telangana government and some building contracts from Andhra Pradesh.
The company is expected to be a key beneficiary of a revival in the economic environment in the hospitality segment. The reopening of the Delhi property and opening of six new hotels is expected to drive topline (CAGR of 14.4% in FY17E-19E). EIH is trading at valuations of (i.e. at EV of 3.8 crore/room, 16.0x FY19E EV/EBITDA).
The public sector bank is expected to ride the economic upswing with sufficient growth capital and strong retail focus. The sale of non-core assets (NSE stake) and a stake in Life & General insurance subsidiaries will remain book accretive.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their 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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