In 2019 so far, the Sensex and Nifty rallied 10 percent each while the BSE Midcap index fell 3 percent and Smallcap index lost 1 percent.
The market after hitting a record high on June 03 and rallying sharply, corrected a bit and remained rangebound ahead of the much-awaited big event - Union Budget FY20. This indicated that going ahead there could be a more stock specific approach than looking at frontline indices levels.
Overall experts feel that the market already ran much ahead of fundamentals i.e. valuations are high, hence there is limited upside in benchmark indices but valuations are at comfort levels in select large-caps and several mid and small-caps.
"Index valuations are not particularly comforting. Therefore, we continue to maintain that this is a stock picker’s market. Investors may have to expand their screens beyond the frontline Nifty names to look for value," Abhiram Eleswarapu, Head of India Equity Research at BNP Paribas told Moneycontrol.
He said both, the BSE Midcap and Smallcap indices, have recovered a tad from their lows, but provide more valuation comfort than the Nifty.
In 2019 so far, the Sensex and Nifty rallied 10 percent each while the BSE Midcap index fell 3 percent and Smallcap index lost 1 percent. If we see the performance of the past year, the benchmark indices gained around 10-12 percent against a 7 percent fall in Midcap and a 15 percent decrease in Smallcap.
In addition, experts said considering likely big bang reforms or aggressive policy roadmap after the NDA's landslide victory in General Elections 2019, stable crude oil prices, asset quality improvement in banks, hope of resolution to liquidity stress and likely US' interest rate cut, there could be strong rally in mid and small-caps and select large-caps.
However, US-China trade tensions, global growth concerns, consumption slowdown and likely below-normal monsoon could dampen sentiment, they added.
"We believe that softening of oil prices will provide comfort to the government, which should essentially help it to continue with higher spending for infrastructure development, which will have a positive cascading impact on several sectors as well," said Rajeev Srivastava, Head Retail Broking, Reliance Securities who advises investors to buy quality stocks with every downfall.
HDFC Securities presented two sets of stocks – Medium Risk Stocks and High-Risk Stocks, which investors, based on their risk profile and return expectations, can invest in from a medium-term perspective.
Though lumpsum investment can also be made in these, considering the fact that the markets have not corrected meaningfully over the past few quarters, one can look at taking the route of a Systematic Investment Plan (SIP), the brokerage advised.
It believes these 16 stocks have the potential to generate 18-25 percent per annum return under SIP investing over the next 18-24 months.
Medium Risk Stocks
BEL is the country’s largest defence electronics equipment manufacturer, which makes it the most trusted, and a preferred company being a Public Sector Utility.
A strong order book of Rs 51,7980 crore, as on March 31, will help the company churn higher revenues and profitability over the coming quarters. This was an increase of 29.1 percent, compared to last year.
BEL is increasing share in the export market through strategic collaborations with world-known institutes, better performance in subsidiaries, and diversification in other sectors, which would help it establish its prowess in the international market.
The first quarter of calendar 2019 has witnessed both housing sales and new supply rise, driven by several measures by the government including sops offered in the interim budget, GST rate cuts and lowering of home loan rates post the Reserve Bank of India’s recent repo rate cut. Disbursements grew by 18.5 percent in Q4FY19 to Rs 812 crore.
The trend of migration from rural to urban is likely to continue. India's urban population is estimated to have grown at a CAGR of 2.8 percent over 2001-2011, resulting in an increase in the urbanisation rate from 27.8 percent to 31.2 percent.
The mortgage penetration in India is substantially low compared to the developed and developing nations, leaving huge scope for growth in demand for housing loans.
The company's value of new business (VNB) margin expansion on a higher proportion of protection and annuity products, absence of any significant contraction in overall term insurance margins in India, and moderating opex growth at HDFC Life are all the positive notes of the company.
It is expected, that HDFC Life is to maintain an around 70 percent share of HDFC Bank’s life insurance premiums, positioning it well for the future, especially now that open architecture related risk has passed.
Also, the presence of a parent bank partner (HDFC Bank) provides HDFC Life with a significant competitive advantage.
Hero Moto dominates the Indian two-wheeler market, where, it still enjoys a market share of 50 percent as on Q3FY19 versus 53 percent in FY2013. It enjoys almost 50 percent of its volume sales through rural India and has a strong dealership network (over 6,500), which has aided its leadership position in the two-wheeler industry.
Going forward, the company is planning to invest in bridging the product gap by launching new products in the segments such as the scooters and premium motorcycle segment.
The two-wheeler industry is seeking a reduction in GST on 100 cc bikes from 28 percent to 18 percent. If this materialises, then companies like Hero Motocorp will benefit hugely.
The valuation of the stock provides comfort as does the attractive dividend yield of 3 percent plus apart from the high return ratios.
The strong competencies of L&T across segments and sectors, along with a sound track record of completing projects as per specifications, have resulted in the company having a robust brand image in India and overseas, as indicated by a strong group level order book of Rs 2.9 lakh crore as on March 2019.
A major push from the government on the roads, railways, and urban infrastructure segments has helped construction companies improve their order book positions. While the pace of execution has picked up, private sector capex is yet to begin in a significant way. The revival of private sector participation will be key to faster infrastructure development. Railways will be one of the biggest drivers of infrastructure capex over the medium term.
L&T has anticipated order tendering pipeline of around Rs 9-10 lakh crore across concerned segments and geographies for FY20. With the conversion strike rate of 20-25 percent, this is like to translate into order inflows of Rs 1.95-2.00 lakh crore (10-12 percent growth, YoY) for FY20E. The management has guided for 10-12 percent order inflow growth and 12-15 percent revenue growth for FY20E backed by a strong bid pipeline and execution pick-up.
Although Procter & Gamble Health (PGHL) has just 0.6 percent market share in the Indian Pharmaceutical Market (IPM), some of PGHL's brands are market leaders and growing well. Concor is the 3rd largest beta blocker in India. Neurobion is the No.1 selling Vitamin B brand on units with the highest number of prescriptions by earning the trust of doctors. Nasivion maintains its lead as the prescribed Nasal decongestant across India. Evion is India’s leading Vitamin E Brand which joined the s 100 crore club in FY17. Livogen is India’s leading doctor prescribed iron supplement. The leadership position shows the products are well accepted by the market.
The Timken India (TIL)-ABC Bearings deal concluded with the effective date of August 30, 2018. The merger enhanced TIL's capacity in tapered roller bearings (TRB) and marked its entry into a new segment: wheel end bearings.
Timken will also realise synergy benefits out of this merger especially in CV and off-highway segment. The capacity buffer at ABC’s plant can now be used by Timken for manufacturing products for India or international markets.
In domestic markets, TIL witnessed a pick-up in segments like renewables, CVs and off-highway, railways and aftermarket segment. In the railway segment, TIL is now making inroads in the 'passenger coach' segment as the new trains like Train 18, Shatabdi and Rajdhani use TRBs. TIL also witnessed demand from newer segments like the Indian Navy. All these may accelerate domestic revenue growth for the company, going forward.
Trent is engaged in the retail sale of readymade garments. It primarily operates stores across three formats: Westside, Star, and Landmark. Trent has created a strong brand, 'Westside', with a thrust on women-centric fashion, and private labels. Healthy private label mix and operating efficiency should continue to drive margin expansion ahead.
A two-decade journey in India, a two-pronged strategy — of creating an enviable list of private labels, and adopting a measured store expansion plan — has done well for the company. Fourth quarter results were pretty satisfactory in revenue terms as compared to last year, where topline registered a growth of 26.4 percent, Ebitda grew by 19 percent and PAT grew by around 38 percent.
High Risk Stocks
Birla Corporation enjoys a strong capacity share of around 14.1 percent currently in central India. Cement demand in the central region is expected to grow at 7-8 percent over the next few years on the back of sustained growth in infrastructure investments by the government and construction under affordable housing.
BCorp also plans to set up additional grinding capacity of 1.2 MTPA at Kundanganj, UP which would help the company maintain its capacity share. It is also planning a 3.9 MT integrated unit at Mukutban which is likely to be commissioned by FY22. To counter the perpetual rise in input costs, the company laid out plans to improve operating efficiencies.
At the time when most pharma companies were focused on the US markets, Caplin Point Laboratories adopted a different strategy to focus on the less regulated Latin America, African, and Caribbean countries, which contribute more than 90 percent to its total revenue.
Since 1990, it has grown to become a leading provider of affordable, high-quality pharmaceutical formulations in several emerging markets including Latin America and Africa, with over 2,700 product registrations globally.
Along with exposure in the unregulated markets of Latin America, and Africa, the company is also looking to increase its market share in the regulated markets of Europe and America. For this, Caplin in January 2019 entered with an investment agreement between its injectables subsidiary, Caplin Steriles, with Eight Roads Ventures, the proprietary investment arm of Fidelity International Ltd, and its US-based sister fund FPrime Capital.
The company posted a good performance for FY19, where, revenue grew by 20 percent on a consolidated basis. Ebitda increased by around 16 percent, and PAT increased by 22 percent, whereas, EPS increased from Rs 19.16 to Rs 23.3, an increase of around 22 percent.
The board of CTIL had approved in May-2018 to demerge the cement manufacturing business and merge it with Ultratech Cement to realise better value for the shareholders. The management wants to focus on other businesses of textile, paper and real estate.
Company has existing land parcels in Worli, Mumbai (30 acres), Kalyan, Mumbai (100 acres) and Pune (45 acres), where the company is rolling out its development plans for premium and mid-income housing and commercial space. The landmark commercial projects of the company in Mumbai - 'Birla Aurora' and 'Birla Centurion' - are fully leased out. In Apr-19, it launched Phase I of a residential project 'Birla Vanya' at Kalyan. In 3 days the company was able to sell around 85 percent of the apartments i.e. 416 units.
DCM Shriram is engaged in the business of fertilizer, sugar, and caustic soda. Its farm solutions which trade in crop care, and other agri-products (other than fertilizers) is expected to witness good growth in volume terms with improving rural and agri-spending. A number of steps taken by the government are expected to positively impact the income levels in the rural and agricultural economy in FY19.
Its fertilizer segment is expected to yield better volumes going ahead, and reduction in a tie-up of working capital once the Direct Benefit Transfer (DBT) is made applicable throughout the country and it achieves operational stability.
DCM bets big on the Fenesta business, as this business has been growing at a steady pace over past 5 years. DCM expects the demand in this segment to improve with improving wage levels, especially in the urban economy. Results for the fourth quarter ended FY19 showcased a stellar performance with PAT growing almost 366 percent.
HPCL is an established player in the oil refining, and marketing sector. As on December 31, 2018, the company had a refining capacity share (including JV) of around 11 percent, with around 20 percent market share (including private players) of the domestic petroleum sector. Both of its refineries, Mumbai and Vishakhapatnam, are operating at more than 100 percent utilisation levels and maintaining healthy energy consumption levels. The company also had an LPG customer base of 81.5 million as of March 2019.
HPCL reported better profitability growth in Q4FY19 on account of healthy performance in the marketing segment. It is doubling its existing capacity at the Vizag refinery from 8.3 mmtpa to 15 mmtpa by FY21 (Outlay Rs 21,000 crore) and increasing it from the current 7.5 mmtpa to 9.5 mmtpa (Outlay Rs 5,000 crore) at its Mumbai refinery, both of which are expected to be commissioned in FY21. These expansions will drive the volume growth and earnings of the refinery business.
Recent portfolio augmentation and two high-value Mumbai launches give a secured outlook for Mahindra Lifespace Developers in the medium term. Moreover, recent Pune (Centralis) addition, FY19 portfolio augmentation, and efforts to add more will provide an upliftment in the profitability. It also completed six projects during Q4, which resulted in a net increase of 231 units of ready unsold inventory.
The newly-found launch momentum and brand/market consolidation led to better volumes, especially against the backdrop of the low-geared balance sheet, which has the potential to provide the leg-room to make the most of the present scenario and create a pipeline for growth.
The key positives are, 33 percent increase in three new launches, new phases in the existing projects increased by 14 percent, and sustenance sales increased by 53 percent.
Over the last few years, MFL has diversified into home finance, microfinance, insurance broking and asset finance verticals. The share of non-gold business has increased from around 5 percent in FY17 to around 12 percent at the end of FY19. The management wants to increase non-gold portfolio's share to 15 percent by FY20.
The company aims to maintain spreads at current levels of around 12 percent for gold loans (around 3.5 percent for home finance business) and will pass on any increase/decrease in funding costs to customers. The funding from banks is available (at around 9.5 percent) but not as easily/cheaply as it did pre-crisis, however, there has been rollover from banks along with fresh credit line being issued.
Being the largest player in the Indian banking space, accounting for more than one-fifth of the total business, the bank is systemically important for the Indian economy. It also has a sizeable overseas presence with overseas advances accounting for over 15 percent of the total gross loan portfolio at the end of FY19.
Considering the majority shareholding and the systemic importance of the bank, the government has been providing support to the bank in terms of capital. In FY18 the government infused capital of Rs 8,800 crore in the bank. Over the last decade, the government has infused capital to the tune of Rs 35,750 crore to support the operations of the bank.
SBI’s loan book grew by 12 percent YoY to stand at Rs 22.9 lakh crore at the end of FY19 up from Rs 20.5 lakh crore at the end of FY18, driven by healthy credit off-take across retail personal segment (18.5 percent YoY) and corporate segment (14.8 percent YoY).
SBI holds a dominant position in home loans and auto loans segment with a market share of over around 35 percent each and an overall market share of over 22 percent in advances of the Indian banking industry.
Asset quality witnessed a significant improvement in FY19 on the back of contained fresh slippages of Rs 39,700 crore and higher write off and recoveries of Rs 74,700 crore. Of the exposure to NCLT accounts, SBI has a provision of 93 percent.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.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.