Diwali Picks 2014 by Microsec
Samvat 2070 had a stellar performance with Nifty gaining 25% during the period to date, and keeping to its tradition of outperformance, Microsec Research recommended stocks have returned 37.4% average returns during the same period. We held the view that cyclical sectors would outperform because of their compelling valuations a year back and we have seen significant returns from quality cyclical stocks in past one year.
Samvat 2071 is a beginning with India being in a sweet spot. India has a stable Government with mandate to take bold decisions to prop up the economy, decline in crude oil price ( Brent ~85/barrel against %101/barrel a year back) as India imports ~80% of crude oil, the targeted increase in diesel prices have come to an end, easing inflationary trends arising, visibility of gradual decline in CPI and WPI, low trade deficit, stable INR and strong GDP growth revival visibility.
Microsec Research believes that Samvat 2071 has surprises in store as India’s inflation is likely to decline sharply giving room to Monetary Policy makers to cut interest rates and propel India’s growth. Our expectations on inflation underpin from the fact that the targeted diesel price hikes put into effect in Sep 2012 has finally ended. The sharp increase in diesel prices over last two years had vicious impact and increased prices across the board. Hence higher base affect, decline in crude oil and commodity prices may sharply bring down inflation, triggering a rate cuts and boosting demand across sectors.
Never-the-less, Samvat 2071 will also see extreme volatilities across asset classes, a signal of which is already visible in anticipation of rate hikes in US and the projected tapering of global economic growth.
Nifty is trading FY16E EPS of 572, at 13.70 times. We believe Nifty is likely to trade 15times FY16E earnings and on that basis target Nifty to trade 8580 levels in next one year. We select the following 9 stocks for investment during Samvat 2071 along with returns highlights of previous recommendations.
| Samvat 2071 recommendations | Pr (16/10/14) | Target Price | change % |
| Infosys | 3865.6 | 4350 | 12.5 |
| BPCL | 666.6 | 798.6 | 19.8 |
| Tata Chemicals | 387.6 | 444.8 | 14.8 |
| State Bank of India | 2465.7 | 3577.5 | 45.1 |
| Indian Bank | 153.6 | 249 | 62.1 |
| Indian Hotels | 95.6 | 122 | 27.6 |
| Coal India | 349 | 440 | 26.1 |
| Lloyd Electric & Eng | 155.1 | 205 | 32.2 |
| Tata Motors | 483.8 | 543 | 12.2 |
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