As India's growth story continues on a positive track, here are five stocks that stand out for their sectoral and company-specific strengths. They are also part of the Diwali picks of different brokerages and boast robust outlooks driven by factors such as market share gains, infrastructure spending, dividend yields, and higher gold prices.
These stocks offer an attractive risk-reward ratio, making them attractive options for investors aiming to rebalance their portfolios as we approach Samvat 2081.
According to SBI Securities, India’s growth story is propelling the country toward becoming the world’s third-largest economy, with Nifty 50 companies poised to deliver an impressive 11.8 percent average earnings growth over FY24-FY26.
The Nifty and Sensex smashed records in Samvat 2080, delivering gains of 27 percent and 25 percent respectively but that’s not all. The broader market saw explosive rallies, with mid-caps and small-caps leading the charge, delivering a staggering 47 percent return.
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As volatility increases in the market and the benchmarks – and the broader markets – witness wild swings with a downward bias, analysts believe that investors should look at it as a golden window to build a rock-solid portfolio and ride the next wave of India’s economic boom straight to wealth creation in Samvat 2081.
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Here are some of the top stock picks for Samvat 2081
1. Zomato
The company has delivered stellar quarterly numbers yet again. Zomato has consistently gained market share over Swiggy from FY22 to 1QFY25, driven by its stronger execution. Based on the reported gross order value (GOV), Zomato’s market share increased from 54% in FY22 to 58% in 1QFY25.
The company is focusing on aggressively expanding Blinkit by entering new cities and deepening its presence in existing markets. This includes broadening product categories like beauty, electronics, and toys, and opening larger dark stores.
With rising competition in the quick-commerce space, Zomato aims to shore up its defenses through a strategic capital raise, with an upper cap of $1 billion. This capital raise will ensure Zomato maintains financial flexibility, allowing it to continue scaling Blinkit while countering competitive pressures effectively.
The company’s cash burn scenario is also now vastly different from what was witnessed when food delivery was scaling up. Contrary to countless questions on whether food delivery would ever be profitable, the viability of the “dark store model” is now beyond doubt: mature dark stores are already margin positive.
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New dark stores are reaching breakeven in GOV terms much faster. Hence, investors will be far more lenient this time, and revenue growth could keep ringing in, as companies unlock new cities, markets, and categories.
Another lever Zomato has is its Rs 2,000 crore acquisition of Paytm’s entertainment business, which analysts reckon may have a good pay-off. Valued at 6.9x FY24 revenue, this all-cash transaction allows Zomato to expand into a lucrative new segment.
Its ability to leverage this acquisition, coupled with its strong competitive position in the food delivery business and the growing moat around the quick commerce business, positions it well for sustainable growth, according to analysts.
Valuations may look a tad expensive – 54 times, revenue. Brokerages like CLSA, Nuvama, MOFSL and several others remain bullish on the stock, pegging the target price as high as Rs 370.
2. HUDCO
The government’s push towards affordable housing and infrastructure projects is one of the biggest drivers behind HUDCO’s success. As the government continues to ramp up spending in these areas, HUDCO is set to benefit the most since it provides financing to these focused sectors.
What's more, HUDCO's recent reclassification as an NBFC-Infrastructure Finance Company allows it to finance a broader range of projects beyond housing, including renewable energy and smart cities, opening up new growth avenues.
Company-Specific Growth: In FY24, HUDCO reported a total income of Rs 7,948 crore, up 12% from the previous year. Net profit for the same period surged by 24% to Rs 2,117 crore. HUDCO’s loan book is growing at an exceptional rate, driven by the government’s infrastructure push. From FY21 to FY24, disbursements doubled from Rs 8,323 crore to Rs 17,987 crore.
Asset quality is fairly positioned with net NPAs pegged at 0.36% for FY24. With a healthy provision coverage ratio of 86%, the company has strong buffers in place to handle any potential risks. Additionally, in a market starved of value, the stock offers a dividend yield of 2% upwards.
Having corrected 43% from recent highs, the stock is currently trading at attractive valuations considering its potential for income as well as loan growth. Based on FY25 estimates, the stock trades at 2.6 times the adjusted book for FY25 and 2.2 times FY26. This compares favourably to the average sector multiple of 2.8 times.
3. Coal India
From being seen as a “dirty” company because of the anti-ESG trade, the world has come to realise there is no way for India to meet its growth aspirations without coal. Markets are reflecting this reality.
After 7 years of underperformance compared to benchmark Nifty till 2021-end, it is being seen as a good bet considering its fairly high dividend yield at a time markets are at the higher end of historic valuation.
The mining company is on track for record-breaking growth, with a production target of 838 MNT for FY25 and an ambitious 1 billion tonnes by FY26.
Analysts say that since 81% of Coal India’s coal goes to the power sector, the company will benefit from consistent demand in important industries like power and steel. Its "First Mile Connectivity" projects, which focus on improving coal transport through automation, are expected to greatly increase transportation capacity by FY29, with an investment of Rs 24,750 crore.
Cost-cutting initiatives, including the closure of unviable underground mines, will further drive productivity and efficiency. CIL’s recent foray into graphite mining taps into the rising demand for materials vital to EVs and energy storage, positioning the company for long-term growth in this high-demand market.
With a 5.2 percent dividend yield and 8.5 times earnings for FY25 and 7.7 times FY26, CIL offers a solid investment with strong growth potential and income stability, according to SBI Securities.
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4. REC
Despite the stupendous run since 2020, this PSU is seen to be well on the growth track thanks to its focus on the growing power and infrastructure segment.
With plans to add 360GW of capacity by FY30 and a growing focus on green financing, REC’s AUM is projected to rise to Rs 6 lakh crore by FY25 and Rs 10 lakh crore by FY29, with renewable projects making up 30% of its portfolio, according to Nirmal Bang. Currently, its AUM stands at Rs 5.46 lakh crore.
Over the past four years, it has seen a dramatic surge in profits from Rs 4,886 crore in FY20 to Rs 47,214 crore, primarily driven by core income growth and provision write-backs. Provision reversals will continue to add to this kitty this year too. REC plans to be a zero non-performing asset company by FY25 end.
Currently, the company has made 100% provisioning for seven projects. The total value of the projects to be resolved is Rs 13,800 crore. The company expects to have write-backs worth Rs 1,500–2,000 crore in FY25.
Even as the stock has seen a significant re-rating over the past four years, institutional interest in the stock is still growing with several big brokerages initiating coverage on the stock while factoring in the long runway for growth. Bernstein initiated coverage on the stock as late as July, saying that investors are "underestimating the duration and intensity of the (capex) cycle."
The brokerage believes that the capex cycle this time around could be double that of the previous cycle. As for power, it said, over the past six years, 100 GW of generation capacity has been added, and Bernstein expects an addition of over 300 GW in the next six years.
More significantly, the brokerage pointed out that the risk of non-performing assets is significantly lower in the current cycle, with approximately 70% of PFC and REC lending directed to government entities and 30% to private renewables.
While the risk of delayed payments from state-owned enterprises has reduced significantly, Bernstein pointed out that private lending, which historically carried a higher risk of default, now is less risky as renewable loans have a shorter execution cycle of one to two years, compared to five years for thermal projects.
REC's book value per share has nearly doubled from Rs 133 in FY20 to Rs 261 in FY24. MOFSL projects a loan book CAGR of 18 percent and a profit CAGR of 15 percent over FY24-FY27. This is for an RoA and RoE of 2.6 percent and 21 percent, respectively and a dividend yield of 4.7 percent in FY27. UBS has a price target of Rs 630, implying a 1.6x Sep’26E P/ABV.
5. Muthoot Finance
The company is well-positioned for growth as gold prices reach record highs, driven by increased central bank purchases and hedging amidst geopolitical uncertainties, the US presidential election, and Japan's rate decisions. This bullish trend enhances the value of gold collateral, reducing default risk for gold financiers.
Jefferies projects accelerated loan growth and improved profitability for Muthoot Finance, anticipating a significant increase in gold prices, which have surged 17% since June to $2,739/oz. Muthoot stands to benefit from potential interest rate cuts, as 31-46% of its liabilities mature within six months, easing net interest margin (NIM) pressure.
Despite near-term headwinds from Reserve Bank of India (RBI) directives, the secured nature of gold lending limits loan losses, with gross non-performing asset (GNPA) levels remaining manageable. The positive outlook for gold prices and anticipated rate cuts suggests robust earnings growth and return on equity (RoE).
Muthoot’s loan assets under management (AUM) are projected to grow at a CAGR of 16% over FY24-26E, driven by rising gold prices, reduced competition, and a decline in unsecured lending. Yields are expected to stabilize around 18%, with the company forecasting a 19% CAGR in profits due to higher AUM and improved operational leverage.
To enhance customer acquisition, Muthoot plans to open 150-200 new branches annually. Its conservative auction policy allows for higher provisions, maintaining low asset quality risk with LTV ratios around 63%.
Given gold's stability as a secure asset class and expected RoE improvements by FY26, Muthoot Finance merits a premium valuation, as the gold collateral significantly exceeds the loan amounts, according to analysts.
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