Sensex @ record highs! Top 10 stocks to buy which could give up to 30% return in 12 months

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Indian market scaled to a fresh peak on the first trading day of November and is all set to hit fresh peaks in the next 12 months. Financials which have a weight of over 30 percent in the benchmark indices are leading the rally on D-Street.

Making money in equity markets is tough and especially when the markets are trading at record highs. The next basic question to hit investors’ mind is to book profits or hold on for better returns?

Well, the answer lies in your risk profile. If you are in equity markets for the long haul then rest assured this rally has more legs and Nifty is well on track to hit Mount 11K. But, if you are a trader then intermittent profit booking might not be a bad idea.

Earnings recovery will prove to be the make or break level for the Indian market. If earnings fail to play catch up then Indian markets will start looking expensive and we could see some course correction in the market, suggest experts.

“We are of the opinion that Nifty is likely to end the calendar year 2017 with more than 25 percent gains for the year. It is our thesis that FY19 and FY20 earnings will grow at 20% CAGR,” Devarsh Vakil, Head – Advisory (Private Client Group), HDFC securities told Moneycontrol.

“The Nifty may post EPS of Rs 693 for FY20, based upon that~15x earnings. If numbers fructify market doesn’t look that expensive. If earnings do not come through we may see a larger correction otherwise we rise in earnings will make markets look reasonable again,” he said.

Benchmark indices might not be able to give double-digit return from here but there are plenty of opportunities in stock specific names.

Here is a list of top 10 stocks which could give a return up to 30% in next 12 months:

Dabur India: BUY| Target Rs 400| Return 20%

UBS maintains a buy rating on Dabur India post-September quarter results but raised its 12-month target price to Rs400 from Rs365 earlier.

It looks like the worst is over for international market and there is robust recovery which could be seen in the domestic business, said the report.

Dabur India has reported consolidated net profit of Rs361.93 crore in the quarter ended 30 September as compared with Rs357.27 crore reported in the year-ago quarter

There is a strategic shift towards volume growth, and rural recovery is likely to aid growth. Increased visibility of volume growth in India business could rerate the stock.

The management expects strong rural stimulus packages to be announced in the run-up to the 2019 elections. Increased visibility of volume growth in the India business could rerate the stock, UBS report said.

Tata Steel: BUY| Target Rs880| Return 25%

CLSA maintains a buy rating on Tata Steel post Q2 results with a target price of Rs880. The September quarter showed good growth.

Tata Steel's financials turned profitable during the September quarter as the company posted a net profit of Rs 1,017.8 crore against a loss of Rs 49.4 crore during the same period last year

The margins should improve in both India and Europe in the second half of current financial year. Steel prices in both India and Europe have started to improve and coking coal costs have remained lower.

The global investment bank remains positive on the strong outlook for its India business and likelihood of European joint venture going through.

ICICI Bank: BUY| Target Rs400| Return 30%

UBS maintains a buy rating on ICICI Bank post Q2 results with a target price of Rs400. The September quarter numbers remained inline with estimates on asset quality and operating metrics.

The watch list continues to decline albeit at slower than expected pace. Visibility on the resolution under bankruptcy law and Indian Accounting Standard are key catalysts in the near term, said the CLSA report.

The global investment bank do not expect significant divergence. It raised earnings per share (EPS) estimates for the financial year ending 2019 and 2020 by 4 percent and 2 percent respectively.

Indian Oil Corp: BUY| Target Rs495| Return 19%

Nomura maintains a buy rating on IOC with a target price of Rs495. The September quarter results were weak due to lower gross refinery margins (GRMs), refinery maintenance shutdowns and lower inventory gains in marketing.

Indian Oil was unable to take optimum advantage of strong refining margins environment.
The company expects improvement in coming quarters with the return of refineries from maintenance shut-downs.

The outlook in both refining and marketing remains good. Indian Oil remains favourite in Oil Marking Companies.

Maruti Suzuki Ltd: BUY| Target Rs9843| Return 20%

Nomura maintains a buy call on Maruti Suzuki post Q2 results and raised its 12-month target price to Rs9843 from Rs8993 earlier.

There is a high growth visibility and premiumisation is likely to drive profitability. The global investment bank raised volume growth outlook for the current financial year to 15 percent from 13.5 percent due to strong demand.

Nomura dealer check suggests festive demand is up 15-20 percent (YoY). It expects volume, revenue, and earnings per share to grow at a compound annual growth rate of 13 percent, 17 percent, and 21 percent respectively over March 2020.

Brokerage Firm: Sharekhan Ltd

Bajaj Finserv: BUY| Target Rs6050| Return 20%

Bajaj Finserv (BFS) is the holding company comprising of lending business and insurance companies. Bajaj Finance Limited (BFL), a subsidiary of BFS (55% stake), is the lending arm with a strong and well-diversified loan book with niche segments.

The insurance subsidiaries of BFS: Bajaj Allianz General Insurance Co Ltd (BAGIC) and Bajaj Allianz Life Insurance Co Ltd (BALIC) too have maintained strong operating metrics.

Sharekhan is of the view that BFL, BAGIC and BALIC have plenty of headroom to grow and can outperform the industry in terms of growth. Hence, it finds significant long-term value in BFS and expects its subsidiaries’ earnings momentum to continue.

Bharat Electronics: BUY| Target Rs220| Return 20%

Bharat Electronics (BEL), a PSU that manufactures electronic, communication and defence equipment, stands to benefit from the enhanced budgetary outlay for strengthening and modernising India’s security.

The government’s “Make in India” initiative and rising spends for modernising defence equipment will support earnings growth in the coming years, as it is the only player with strong research and manufacturing capabilities in the country.

The company’s current order book of Rs. 41,746 crore provides revenue visibility over the next 3-4 years. Sharekhan expects revenue to clock a CAGR of 16.5 percent over FY2017-FY2020E, led by strong order wins and an impressive execution rate.

BEL remains our preferred pick in the defense sector on account of its strong manufacturing and R&D base, good cost control, growing indigenisation and strong balance sheet with improving return ratios.

HDFC Bank: BUY| Target Rs2100| Return 16%

HDFC Bank has a pre-eminent presence in the retail banking segment (~50% of loan book) and has been able to maintain strong and consistent loan book growth, gradually gaining market share.

Going forward, economic recovery and improved consumer sentiments would be positive growth drivers for the bank’s loan growth, which will in turn drive profitability.

HDFC Bank is well poised to tap the growth opportunities going ahead due to strong capital ratios, healthy asset quality and a steady revival in consumer spending.

As lending and transactions through formal routes increase, HDFC Bank would benefit since it is a leading private sector bank and it is likely that it will gain market share in this segment. The bank is likely to maintain healthy RoE of 18-20% and RoA of 1.8% on a sustainable basis.

IndusInd Bank: BUY| Target Rs2000| Return 22%

IndusInd Bank is among the fastest-growing banks (25%+ CAGR over FY2012-FY2017), with a loan book of Rs. 1.23 lakh crore and 1,250 branches across the country. About 55% of the bank’s loan book comprises retail finance, which is a high-yielding category and is showing signs of growth.

A likely revival in the Indian economy will further fuel growth in the bank’s consumer finance division, while strong capital ratios will support future growth plans.

Though demonetisation has raised questions regarding delinquencies in certain lending segments, the management expects asset quality to remain under control.

The stock should continue to trade at a premium valuation, underpinned by strong loan growth, quality management, high RoAs and healthy asset quality. We have a positive outlook on IndusInd Bank.

Jubilant Foodworks: Target Rs1914| Return 17%

Jubilant Foodworks Limited (JFL), India’s largest food service company, shifted its focus to customer satisfaction from store additions to improve its store fundamentals over the long run.

With negative working capital, the company’s balance sheet remained lean amid slowing SSG and sustained store additions.

JFL would be one of the key beneficiaries of improvement in the discretionary environment in the domestic market. With a redefined strategy, revenue and earnings of JFL are expected to clock CAGRs of 12% and 47%, respectively, over FY2017 to FY2020.

Disclaimer: The views and investment tips expressed by the 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.