Top six stocks to buy which are a play on India's economic recovery: ICICI Securities

February 11, 2008: The Sensex dropped 4.57 percent within a day, as the Index shed 796.43 points. The benchmark Index fell 833 points, or 4.78 percent and closed at 16,630 on growing global worries over slowing economic expansion. The reasons cited for this fall were weak global markets and disappointing corporate earnings.

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With the onset of earnings season, the Street will look for cues from it to decide its course. Several experts are hoping for a recovery in earnings, which has been elusive for the past couple of years.

ICICI Securities, too, believes that the growth in earnings would be the key factor. With enabling fundamental factors such as stabilised commodity base, upbeat consumption and favourable low base, the earnings growth could recover and drive the market's momentum.

Additionally, investors' attraction to equity and liquidity will also be key determinants, the report said.

“We expect domestic led sectors to do well over the next couple of years. Our top picks are reflective of the same,” it said in its report.

Moneycontrol lists out top six picks from the brokerage firm.

1. East India Hotels | Action: Buy

The brokerage pointed to a high presence in business locations. Out of the company’s total room inventory of 4752, EIH owns around 44 percent of rooms, of which, 95 percent are at business locations. “We expect revenue from these business destinations to drive the growth of the company, going ahead, led by a revival in the economic environment,” the report stated.

Furthermore, it expects occupancy levels to improve due to rise in domestic spending by travelers and slowdown of capacity additions.

In FY19 estimates, it expects the company to report 22 percent YoY revenue growth led by reopening of the Delhi property and healthy demand.

2. Federal Bank | Action: Buy

Despite being well capitalised, the bank saw slower credit growth of 9 percent in FY12-Q3FY17 to | 69939 crore. This was due to asset quality issues and a conservative stance on asset growth. This impacted its RoE

The bank’s RoE was impacted on the back of asset quality issues and a conservative stance on asset growth. But, in the last three quarters, it has been on a strong growth path. The brokerage house estimates advances to increase 25 percent in FY18.

“We expect the forward multiple to improve. Further, value unlocking of stakes in life insurance JV & NBFC subsidiary would add to valuations, going ahead

3. GAIL (India) | Action: Buy

The brokerage house has a buy call on the stock. It sees GAIL’s transmission volumes increasing at 6.6 percent CAGR in FY16-19E to 112 mmscmd in FY19E, due to incremental LNG capacity coming on stream and higher demand for contracted LNG.

Furthermore, it expects GAIL’s profit to increase at 28.9 percent CAGR over FY16-19E to Rs 4,920.5 crore in FY19E. “Stable gas transmission and trading business, turnaround in petchem operations, increasing CGD business and stable LPG/LHC make GAIL a preferred choice,” it said in its report.

4. NCC | Action: Buy

The brokerage house has a positive stance on the stock as it is well poised to capture huge opportunities ahead given its balance sheet position. “Going ahead, we expect topline, bottomline to grow robustly at 12.6 percent, 15.8 percent CAGR to Rs 10,303.4
crore, Rs 323.2 crore, respectively, in FY17E-19E,” it said in the report.

ICICI Securities is also comfortable due to the balance sheet strength of the firm. With asset monetisation, rights issue and improvement in working capital cycle, NCC has managed to keep its balance sheet under check, it added.

5. State Bank of India | Action: Buy

The brokerage remains positive on the stock with a buy call.

Going ahead, with retail & better rated corporate segment in focus, it expects credit growth to stay in line with industry at 11.5 percent CAGR in FY17-19E

With the merger of five associate bank, SBI has joined the league of top 50 banks globally in terms of assets. The merged entity will have a deposit base of more than Rs 26 lakh crore and advances of Rs 18.5 lakh crore.

6. Wabco India | Action: Buy

The brokerage house believes long term growth in M&HCV volumes will be driven by, improving viability of fleet operators, government’s thrust on infrastructure development and government’s focus on scrappage policy.

“With the government focusing more on safety norms, Wabco India is well placed to capture this growth opportunity. Thus, we remain positive on the long term growth prospects of the company,” the brokerage said in a report.

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.