Markets @ record highs; Top 10 wealth creating ideas for next 3-5 years

Investors should look at stocks which can generate wealth over a period of 3-5 years. These stocks can be bought now or on declines to give maximum risk-to-reward benefits.

Index, on the other hand, is likely to give a moderate return in the next 12 months. Hence, investors should not have high hopes from Nifty or Sensex, suggest experts.

"We expect a moderate return in next 12 months compared to last 2 years rally. The optimism of the market is the recovery of earnings growth in spite of premium valuation which market expects to be maintained,” Vinod Nair, Head of Research at Geojit Financial Services told Moneycontrol.

“We are constructively positive in India since the premium valuation of the country is likely to be maintained over the long-term as country risk are reducing. We are also positive on specific sectors and stocks gave an improvement in business outlook and enhanced profitability for organised players over the next 1-2 years which is very attractive for equity as an investment class,” he said.

We have collated a list of top 10 wealth-creating ideas with an investment horizon of 3-5 years:

Analyst: Dyanshwar Padwal, AVP- Technical Analysis, KIFS Trade Capital

L&T Finance Holdings:

This NBFC caters to the unbanked masses in the rural and semi-urban area and lends to the informal sector and people without credit histories. It creates a competitive edge in the financial market.

NBFC growth is still overdue on cards due to the high demand of Housing Finance. The scheme of affordable housing gives a boost to the market of NBFC.

While getting loans from the bank is a tiresome job it is much easier and the rules are not that stringent as compared to that of public and private sector banks.

Tata Power:

India’s per capita expenditure on electricity is higher than most of the developed nations. The management assured that non-core investments will be sold this will be a positive step so as to deleverage the position of the balance sheet.

Tata Power's aim is to build a network that will make it easier for people to adapt to electric vehicles and be future ready, the company said in a statement. This can be a boon to Tata power profitability and will help the country to achieve its plan of the Electric vehicle.

Indraprastha Gas Ltd (IGL):

Indraprastha Gas Ltd will invest Rs600 crore this fiscal to expand operations, including starting CNG and piped cooking gas retailing in three cities of Haryana.

IGL, the sole supplier of CNG to automobiles and piped natural gas (PNG) to households in the national capital and adjoining cities of Noida, Greater Noida and Ghaziabad, is "all set to expand its footprints in Haryana through setting up city gas distribution (CGD) networks", a company statement said.

The firm won CGD licence for Karnal district in Haryana recently, IGL Chairman S Ramesh told shareholders during his AGM speech. The company has already started supply of gas in Rewari and secured permission from the Haryana government to lay down the CGD network in parts of Gurugram, formerly known as Gurgaon.

IGL has drawn out plans to expand its area of operations by investing Rs 600 crore in 2017-18. The stock is trading in uncharted territory and has potential to travel beyond Rs 2,000.

Mahanagar Gas Ltd (MGL):

Natural gas production in India has grown at a CAGR of 3.5 percent during 2005-15 and ICRA expects its production to rise to about 110 mmscmd by 2020-21 and to 125 mmscmd by 2026-27 from the current level of about 88 mmscmd stoked by market-linked pricing formula and marketing freedom allowed by the government to companies (subject to a price ceiling of $5.3 per MMBTU in challenging areas).

MGL witnessed an improvement in its margins in the last quarter mainly on account of better price realisation due to fall in administered pricing mechanism (APM) gas cost to $2.48/MMBTU from $3.06/MMBTU, commercial customer category (mainly restaurant with improvement in 19 kg cylinder price), reduction in procurement prices of spot gas and favourable exchange rate.

The ever-expanding customer base coupled with large unserved population is likely to boost its operations and earnings going forward; we have increased our FY18e EPS to Rs47.75 from our previous estimate of Rs44.47.

Analyst: Prakarsh Gagdani CEO, 5Paisa Capital, A subsidiary of IIFL Group

ICICI Prudential Life Insurance:

The stock which made its debut on D-Street last year in September could be a great stock pick for next 3-5 years. The stock is up over 20 percent since listing.

ICICI Prudential Life Insurance Company is the largest private sector life insurer in India. ICICI Prudential is a joint venture between ICICI Bank and Prudential Corporation Holdings, a part of the Prudential Group, an international financial services group.

The company is one of the first private sector life insurance companies in India. It commenced operations in October 2000 and offers a range of life insurance, health insurance and pension products and services.

“The company is well capitalized for growth opportunities. The solvency ratio was at a healthy level of 288.6 percent end June 2017, which is much above the regulatory requirement of 150 percent,” SMC Capital said in a report.

“Thus, it is expected that the stock will see a price target of Rs.481 in 8 to 10 months-time frame on a one-year average P/BV of 9.38x and FY18 BVPS of Rs.51.29,” it said

Analyst: Vinod Nair, Head of Research at Geojit Financial Services

Can-Fin Homes:

Can Fin Homes Ltd (CFHL) is one of the best-placed housing finance companies (HFCs) with best in class asset quality and strong return ratios. It is also the fastest growing HFC with a strong loan book CAGR of 38% over FY12-17.

Indian economy would require an investment of around USD1.0tn over the next five to seven years to meet the increasing infrastructure and housing demand at the current growth levels.

CFHL has a strong marketing and distribution network of 170 outlets spread across 19 states and is well placed to exploit the huge growth opportunities.

We believe that the renewed vigour to expand balance sheet and new branch additions in recent months will help the company to sustain a loan book growth of 25 percent CAGR over FY17-19E.

Tata Motors:

Tata motors (TAMO) is India’s largest CV manufacturer is aiming to increases its current market share from 55% to 60% in 2 to 3 years on the back of six new launches and four new launches in ILCV segment in FY18.

PV standalone sales growth for H1FY18 was 12 percent YoY led by the success of recent launches including Tiago, Tigor and Nexon and the trend to continue for a full year.

We project overall revenue & PAT growth of 13 percent and 33 percent CAGR over FY17-19E, driven by 10 percent growth in JLR volume and successful launches in the standalone business.

We value the stock on SOTP basis, ascribing separate value to JLR (3.5xEV/EBITDA), China JV (3.5x EV/EBITDA), standalone (8x EV/EBITDA) & investment in subsidiaries (using P/E, P/BV), recommend Buy rating with a target of Rs508.

NBCC:

Mammoth order book of Rs75,000cr (12x FY17 sales) provides strong visibility for next 5yrs. NBCC is at the sweet spot with an inflow guidance of Rs25,000cr for FY18E, limited competition, and expertise in executing large projects.

Execution from large redevelopment is likely to improve from H2FY18E which will add impetus for re-rating. With pick up in execution, we factored earnings to grow at 42 percent CAGR over FY17-19E supported by 60bps improvement in EBITDA margin.

Considering the asset-light PMC segment, less leveraged balance sheet and robust opportunities in the pipeline, NBCC will command premium valuation in the construction space.

Bharat Electronics Ltd:

Bharat Electronics Ltd (BEL) has 37 percent market share in defence electronics and its core capabilities are in radar & weapons systems, defence communication & electronic warfare.

BEL has limited competition, due to its niche capabilities and strong technological tie-ups, strategic nature of projects, capital-intensive nature & high gestation periods act as strong barriers to competition.

Going forward, BEL will emerge as a key beneficiary from on-going defence modernization programmes & GoI focus on indigenisation. The current order backlog of Rs41,052cr is 5x FY17 sales, which has significantly improved the earnings outlook.

Aarti Industries Ltd:

AARTI Industries Ltd (ARTO) is a global leader in Benzene based derivative products. Has a diversified product portfolio with end users in pharma, agrochemicals, specialty polymers, paints & pigments.

Exceptional performance over FY11-FY17, Revenue and PAT grew by14% & 25% CAGR, respectively. Focus on high margin products and cost reduction through forward and backward integration led to expansion in EBITDA margins to 20.7% from 13.6% during FY11- FY17.

During last 2-3yrs, ARTO is aggressively building CAPEX in various product categories with a focus on global markets.

Currently, global chemical companies are de-risking the supply chain for their raw material by diversifying from China to India, which will benefit domestic companies like ARTO.

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