The S&P BSE Sensex has fallen over 500 points from its life high of 32,686.48 while Nifty50 struggles around its crucial support level of 10,000 as traders prefer to book profits at higher levels.
The index made Bearish Belt Hold kind of pattern in the last two trading session which suggests that bears took control of D-Street but strong support near 13-DEMA placed at 9988 and 20-DEMA of 9942 is likely to lend support in case index starts drifting south.
Analysts advise investors to shop for quality stocks as any correction gives enough opportunities for long term investors to build their portfolio or average out their investments.
The liquidity driven rally which pushed equity markets to record highs not just in India but across the globe could soon slowdown and put brakes on the euphoric rise seen in benchmark indices so far in the year 2017. Sensex rose over 20 percent so far in the year.
How long this gush of liquidity will continue is anyone’s guess but we need to start exercising caution, suggest experts. “The US Federal Reserve (Fed) has already started tightening interest rates after loosening them for 8 long years post-Lehman crisis,” Ajay Bodke, CEO & Chief Portfolio Manager (PMS) at Prabhudas Lilladher Pvt. Ltd told Moneycontrol.
“With economic growth almost stabilizing in the rest of the developed world, other Central Banks like the ECB, BOE, BOJ etc. are likely to follow suit sooner rather than later,” he said. This would lead to a spike in risk aversion and ebb of flows from developed markets to emerging markets (EM).
Bodke further added that one needs to tread cautiously in such a euphoric market. One cannot say with precision as to what will trigger a correction.
Nifty@10,000 is more of a psychological level than anything else. The only concern is that at this level, markets are fairly priced but that does not mean it is on the verge of a big correction.
Intermediate correction in the markets cannot be ruled out considering we are in a bull market. Investors need to be choosy while picking stocks now because earnings have not shown any signs of revival which could support expensive valuations.
“Further upsides or declines would be dependent on the news flow and earnings support. If the earnings season pans out well, inflation remains benign and the US gradually hikes rates, then the markets could witness further upsides,” Sanjeev Zarbade, Vice President – PCG Research, Kotak Securities told Moneycontrol.
We have collated a list of ten stocks which investors can look at buying on the decline as they are still trading at decent valuations:
Analyst: Sagar Doshi, Technical Analyst, Edelweiss Broking Limited
Indian Road sector is expected to experience immense growth backed by an increase in spend and improved policies by the government both at central and state levels.
Strong and in-house execution, end-to-end capabilities, and before time delivery aid DBL to earn highest EBITDA margin and one of the highest RoCE in the road construction space.
Limited investment and improved working capital cycle will reduce the stress on balance sheet and hence return on invested capital will improve going forward
Sanghi Industries (SNGI) is well-integrated cement manufacturing player based in Gujarat with an installed grinding capacity of 4.1MTPA, clinker capacity of 3.6MTPA and a 60MW multi-fuel power plant.
Deeper inroads in lucrative Mumbai market to boost realisation and margin. Currently, SNGI sells 20k tonne cement per month in Mumbai, which is expected to catapult to 60k-70k tonne cement per month, resulting 7.5-8.5lakh tonne per annum.
We estimate SNGI to clock 14 percent revenue CAGR over FY16-19 led primarily by higher volume CAGR of 8.6 percent and 5 percent realisation CAGR.
Borosil Glass Works Ltd. (BOROSIL) is the market leader for laboratory glassware and microwavable kitchenware in India. The company operates through two segments.
The company operates primarily in 3 business segments (post restructuring of a subsidiary, Gujarat Borosil): Scientific and industrial products division (~28% of revenue), Consumer products division (~37% of revenue) and Gujarat Borosil (~35% of revenue).
We envisage Borosil’s EBITDA margin to jump to 16 percent in FY20E from 10.7 percent in FY17 riding multiple levers.
Unabated dumping by Chinese carbon steel seamless tubes manufacturers in the Indian market has an average demand of 7 lakh tpa, had resulted in MSL running at a capacity utilisation of 30-35 percent for the past few years.
With anti-dumping duties ~USD 1000 /ton being levied post-May 2016, market volumes of 2.5-3 lakh tons per annum have opened up for domestic manufacturers.
With mid cycle EBIDTA/ton assumption of INR 10,000/ton for carbon steel seamless tubes aided by INR 4000/ton EBIDTA from ERW pipes, we expect MSL to post EBITDA of INR 416cr in FY19E, also aided by EBIDTA of INR 31cr from power assets.
We value the stock at a 2 year forward EV/EBITDA of 7x against average multiple of during past decade. We recommend ‘Trading BUY’ on the stock with a target price of INR 439/share.
Trident is one of the largest integrated home textile manufacturers in the world. Commencing operations as a yarn player, the company has shifted to the higher margin home textile segment.
We estimate the company’s operating margin to improve to over 22 percent in FY19 from 19.5 percent in FY16 due to shift up the value chain with home textile accounting for 71 percent of revenue in FY19E versus 46 percent in FY16.
While top line growth will be muted due to higher captive yarn consumption, the bottom line can catapult 30 percent over FY17-19E as operating and financial leverage plays out.
At an inexpensive valuation of 8x FY19E P/E, increasing RoCE and the ability to generate free cash flows in excess of INR600cr every year provides a high margin of safety.
Analyst: Sanjeev Zarbade, Vice President – PCG Research, Kotak Securities
DB Corp is one of the largest newsprint companies in India and is barely a quarter away from entering its “election supercycle” which we believe shall have a significant impact on earnings revisions, as well as valuations.
We continue to see a high likelihood of significant gains in DB Corp. While our investment thesis has not begun to play out, we believe we are now entering a phase of strong growth in advertising revenues, and a period of relative calm/ favourable base in other categories.
Valuations are undemanding and conducive for medium-term/ long-term investors.
The company has charted a long term plan for improving its performance in the domestic passenger vehicle and commercial vehicle segment. Plus, given strong product pipeline, JLR’s volume outlook remains positive.
With the completion of Dahej RLNG expansion, the capacity has increased by 50 percent to 15 mmtpa from 5 percent. Full 15 mmtpa capacity is booked, giving decent revenue visibility.
We expect spot LNG prices to remain lower in the near term. We expect LNG consumption to rise in India as the government has cut customs duty on LNG to 2.5 percent.
Additionally, there is a strong possibility of a ban on furnace oil and petroleum coke in NCR, resulting in incremental demand on LNG.
Shipping markets have become stable and expected to improve going forward which should boost the revenues and earnings of the company.
The balance sheet health of the company has also improved over the last two years with debt prepayment and is expected to improve further going forward.
Strategic sale by government is expected to remove government bound constraints and improve management of SCI which should add value to the company
It is an over 150-year old PSU company with rich real estate spread over 30 facilities, mostly in cities It has maintained an impressive track record of dividends.
The logistic business posted impressive performance in the last quarter and accounts for nearly 50 percent of total company profits.
Travel division made a substantial turnaround in profitability in FY2017 by acquiring a small private travel business - segment profit jumped over 45 percent on a YoY basis. The company has a strong balance sheet with net cash of over Rs.5 billion which is 1/5th of its market cap.
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.
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