Kshitij Anand Moneycontrol News
Just when we thought that things have started to stabalise, bears reinforced their dominance on D-Street, last week. The S&P BSE Sensex and Nifty50 were down by over 1 percent for the week ended October 19.
But, from the highs, benchmark indices have suffered a double-digit cut. The S&P BSE Sensex is down a little over 10 percent from its record high of 38,989, while for Nifty, the fall is more than 12 percent.
The rise in crude oil prices, concerns over liquidity conditions in NBFCs, fluctuating rupee, rise in interest rate by US Fed along with treasury yields, relentless selling by foreign investors and high valuations in small & mid-cap space are some of the factors which led to a steep fall in indices.
The key question for investors now is “will the fall continue”?
Yes, say most experts.
Most experts who Moneycontrol spoke to said that after falling over 10 percent from the highs and wiping out returns made in 2018, at least for Nifty, investors should brace for some more correction and use the dips to get into high-quality stocks.
“Well, it is probably the right time to sit tight for some more time and rebalance portfolios to reflect the recent developments. Another round of correction will take markets to a zone where one can pick quality stocks at appropriate prices,” Vinay Khattar, head Edelweiss Investment Research told Moneycontrol.
“The frothy nature of the market has become more normalized. We are still trading higher than average valuations of 16 times one year forward earnings. In the short-term, FII selling may put pressure on a few FII favourites but only the ones which do not deliver earnings growth,” he said.
So should investors buy now or wait for some more time?
Experts feel that investors sitting on cash should buy into markets in a scattered manner instead of making a lump sum payment. The market is likely to remain volatile and investors should use correction to build a strong long-term portfolio.
Khattar of Edelweiss said that investors who have raised since cash should use further corrections to increase allocations to equity in a staggered manner. Stocks would always outperform bonds over the long term. So fixed-income allocations should reflect this reality
“Most of the foreign investors (FIIs) continue to remain cautious on Indian equities. Interestingly, Nifty priced in US Dollars are nearly the same as it was a decade ago.
“The market is expected to swing between correction and rally attempt for few months. Therefore, we feel markets will be volatile for some months now and in such a market capital preservation is a key,” Steven Birch, President & CEO, William O’Neil + Co told Moneycontrol.
“We currently advise investors to sit tight on cash and prepare watch list of high-quality growth stocks which have industry leading revenue and earnings growth,” he said.
Here is a list of ten stocks from different experts which are considered value buys at current levels:
Analyst: Steven Birch, President & CEO, William O’Neil + Co
Fundamentals are improving for Cipla. The consensus estimated earnings are likely to grow in double-digit for the next two years. The growth in revenue from the domestic markets (+22% in Q1) and Africa (+14% in Q1) has a positive impact on the stock.
In the current market scenario, it has a favorable technical profile as the stock trade above the 200-day line. The level of Rs 680 is ideal buy price given the fundamentals are intact.
After correcting in the first half of October, Biocon is able to recover and reclaim 50-day line. Biocon holds 71 percent stake in Syngene. It has a large and growing addressable market (CAGR 22% from 2014 to 2018) can benefit the firm.
Also, strong Biosimilar product portfolio has the potential to increase revenue. The consensus estimates earnings growth to be more than 50 percent in 2018-19. The stock is also in our Global Focus List.
It is the country’s leading private sector general insurance company with a market share of 16.8 percent in the private space. The stock witnessed a sharp recovery and managed to reclaim 200-DMA after correction.
Consensus estimates 30 percent earnings growth in 2018-19. Also, increasing penetration of insurance in India is a growth driver.
Aditya Birla Fashion and Retail:
ABFRL brand outlets across 700+ cities and towns, 4,900+ multi-brand outlets across the country. Pantaloons revenue was up 26 percent in Q1.
Now, Pantaloon is also venturing in online space and an increase in revenue from the in-house brand can help improve margins. Also, upcoming festive season and private spending expected to increase, the stock has the potential to do well. The technical profile is favorable as it is able to retake 50-DMA and 21-DMA after correcting.
The Company has a strong fundamental and diverse product portfolio. It has more than 8,000 retail outlets in India with a network of over 1300 retailers across 27 countries. It can benefit from increasing private spending in the country.
The stock had undergone heavy correction with low volumes but has recovered sharply during last week and technical profile improving after it retakes 200-day line.
Analyst: Vinod Nair, Head of Research at Geojit Financial Services
Avenue Supermarts Ltd (D’Mart) owns and operates India’s most profitable supermarket store, D’Mart. It provides products like foods, non-foods (FMCG), general merchandise and apparel categories through 160 stores (5.1 mn sq. ft).
D’Mart reported a robust revenue growth of 39 percent on a YoY basis in Q2FY19, but EBITDA margin declined by 110 bps due to the daily discount strategy.
We assume the historically high growth in earnings to a slowdown in the current fiscal to 28 percent but will resume aided by accelerated growth in store additions, further reduction in debt and tailwinds from GST. We upgrade the rating to Accumulate from Hold considering recent correction in stock price with a target price of Rs 1513.
HDFC Bank is the second largest private sector bank in India. The bank has a nationwide distribution network of 4,804 branches and 12,808 ATM's in 2,666 cities/towns.
We are structurally positive on the bank given its top-notch asset quality, robust retail franchise, strong balance sheet growth, and best-in-class management pedigree. We expect the bank to maintain superior return ratios with RoE of 19 percent and ROA of 2 percent over FY18-20E.
Further, we expect NII/PAT to grow at a CAGR of 20%/21% over FY18-20E on the back of 20 percent growth in loans coupled with improving operating efficiency. As a result, HDFC bank will continue to enjoy premium valuation within the banking space.
NATCO Pharma (NATCO) is an R&D focussed, a vertically integrated pharmaceutical company with an experienced management team and presence across multiple speciality therapeutic segments.
We expect international niche FD segment to grow by 22% and 27% respectively for FY19/20E and factor an earnings outlook of 32 percent CAGR over FY18-20E.
Recently, they got the court rulings in favour of them re-affirming the prior decision of their prime. The target price can be kept at Rs 831.
Brokerage Firm: HDFC Securities Ltd
Indraprastha Gas (IGL):
IGL is the pioneer in CGD, and one of the key beneficiaries of the changing landscape in favour of natural gas. It has an exclusive position in the CGD business in Delhi, and infrastructure exclusivity (up to Dec-2023) for its NCT operations (though marketing exclusivity expired in Dec-2011).
A secure gas-tie up with GAIL for a large portion of its current operations and a favourable demand outlook for CNG and PNG segments reduces the risk factor for the company.
IGL has fairly aggressive expansion plans, entailing an outlay of ~Rs 14.7bn over FY18-FY20. The inclusion of Gas in GST and stricter laws for petcoke could further benefit IGL.
We expect the momentum in volume growth to continue for the company. IGL has won 4 geographical areas in the recently held 9th round of CGD auctions and PNGRB has already commenced planning for the 10th round.
With rich expertise in highly technical business and a strong balance sheet, IGL is a front-runner in the pursuit of high-potential GAs.
Brokerage Firm: Axis Securities Ltd
Endurance Technologies Ltd (ETL) remains one of our top pick in India Autos with its FY18-20 earnings CAGR of over 30 percent better visibility in ETL’s earnings growth justifies its premium valuation.
ETL’s lower cost compared to peers, high economies of scale, strong vendor base, the strategy of outsourcing non-core operations and in-sourcing is the key driver going forward.
It has plants which cater to multiple customers with scale: Pantnagar plant will now cater to not just Bajaj, but also Honda Motorcycle and Scooters (HMSI), which will drive utilization.
Endurance enjoys a high share of business (>80%) with Bajaj Auto and Royal Enfield (RE) – these are the only OEMs where it is supplying all its 4 products (casting, suspension, transmission, and brakes).
Going ahead, deeper in-roads with Hero MotoCorp and Honda Motorcycles & Scooters India are triggers for outperformance. Axis Securities maintains a buy with a target of Rs 1216.
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. Analyst or the firm could hold a stake in the stock pick(s) mentioned. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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