The S&P BSE Sensex rose a little over 16 percent so far in the financial year 2017 amid global and domestic headwinds. On the global front, India managed to live through Brexit, uncertainty around US Federal Reserve rate hike as well as surprise victory of Donald Trump in US elections.
On the domestic front, lacklustre earnings growth, as well as demonetisation, weighed on the growth rate of the economy and revenues of India Inc. It was not a smooth ride for the market, but global liquidity pushed the markets higher.
The Nifty managed to bounce back in December after the index hit a low of 7,900 and after it went in just one direction i.e. upwards to hit its fresh record high of 9,218 on March 17.
For the next 9-12 months, most analysts are pencilling a target of 30,000 on the Sensex as well as 9,300 on the Nifty, but there will be plenty of stock specific action.
"Going forward, given the low base, stable commodity prices and revival of consumption led demand, we expect strong double-digit earnings recovery over FY18-19E," Pankaj Pandey, Head of Research, ICICI Securities told moneycontrol.
"We assign a multiple of 16x on FY18E & FY19 average EPS (average of Rs. 1,750 and Rs 2,098) to arrive at a fair value of 30,800 as our CY17/FY18E target for the Sensex and 9,300 levels for Nifty," he said.
The rally, which we saw in the financial year, was largely led by strong global and domestic liquidity while lingering concerns over earnings revival as well as demonetisation still remain.
Hence, investors need to be cautious and use dips to get into quality stocks. The liquidity-driven rally has already pushed benchmark indices above their key historic averages and some bit of consolidation cannot be ruled out.
But, any extended phase of consolidation will not last long because the global economy is picking up steam and if the government back home reinforces reform agenda, dips will be bought, suggest experts.
“A large portion of India's stock market performance was led by global factors. During the last 5months MSCI developed market has given a return of 8.5 percent, followed by 5.5 percent by MSCI-EM where MSCI-India has largely performed in-line with other EMs with 5 percent return in dollar term,” Vinod Nair, Head of Research at Geojit Financial Services told moneycontrol.
Nair further added that India is yet to benefit from the undertaken reforms and the possibility of further reforms given the recent electoral triumph. Hence, the possibility of a revival in earnings growth is good especially by FY19 as the impact of demo reverts, GST becomes efficient, increase in WPI (wholesale price index), higher government spending and the start of private investment.
We have collated a list of ten stocks which investors can buy on dips from various brokerage firms for the coming financial year:
Analyst: Vinod Nair, Head of Research at Geojit Financial Services
Ujjivan Financial Services is the third-largest NBFC microfinance (MFI) in India in terms of loans disbursed as of March 2016. It has a network of 469 branches across 24 states and has a loan book of Rs 5,900 crore.
Small finance bank (SFB) license opens up long-term growth opportunities through larger ticket size loans, new products and deposit mobilization.
Microfinance will continue to drive loan growth in next two years, while individual loans, new products & high ticket size loans in SFB business would be future growth triggers.
Ujjivan has high customer retention rate of 86 percent despite growing its client base at an aggressive 44 percent CAGR over FY13-16.
As an SFB, Ujjivan will move up the ladder with new products and directly compete with NBFCs and Banks. However, Ujjivan is better placed due to the strong client base it already enjoys in rural unbanked markets.
Bharat Electronics Ltd (BEL) is a Navaratna enterprise having 37 percent market share in Indian Defence Electronics. BEL’s core capabilities are in radar & weapons systems, defence communication & electronic warfare.
BEL's current order book is at Rs33,806 crore which is 4.7x FY16 sales, provides strong revenue visibility for next 4yrs. The current trend of strong order intake is expected to continue going for next few years given likely finalisation of a few of the large orders like LRSAM, MRSAM and Akash system.
To benefit from the government’s higher focus on Make in India and higher indigenous procurement given its strong execution capabilities, technological tie-ups with a higher focus on R&D. Given the shift of business towards system integration margins is expected to improve going forward.
NCC Limited (NCC) is one of the largest well-diversified construction companies in India having a foothold in every segment of the construction sector.
The healthy order book of Rs. 20,466 crore, which is 2.2x TTM provides strong visibility of revenue growth in the coming years.
In 9MFY17, total order inflow has grown by 98 percent YoY and we expect the opportunity remains robust in building & road, water and urban infrastructure. Standalone debt to equity stands at 0.6x in 9MFY17 supported by asset monetization.
The curb in debt leads to a fall in interest cost by 22 percent in 9MFY17. Geojit expects revenue and PAT CAGR of 9 percent and 19 percent over FY16-19E.
Bharat Forge Ltd (BFL) is a leading player in the forgings industry serving several sectors including automobile, power, oil and gas, rail & marine, aerospace, construction, mining etc.
The brokerage firm expects the domestic auto segment to register double-digit growth on the back of improved demand from the OEM's. BFL's order from Boeing for developing and manufacturing 777x titanium forgings will start reflecting in its revenue from FY19E.
The company is eyeing for 100-200 percent volume growth in defence space by 2020. The long-term growth outlook remains robust on the backdrop of improved revenue visibility.
Geojit expects 13 percent revenue CAGR over FY17-19E led by pick in domestic CV market and de-risking the utilization in the non-auto sector.
Asian paints (APNT) is the market leader in the Indian paint manufacturing industry with a market share of 53 percent. Demand outlook looks uncertain in the short term due to the cash crunch situation.
However, growth in agriculture coupled with declining interest rate in the economy should provide the impetus for the growth. Additionally, the automotive coating JV and international business reported good numbers aided by pick up in the auto OEM segments and contributions from Nepal, Fiji and certain units in the Middle East.
Currently, some volatility has been seen in crude prices after OPEC agreed on an output cut, while the company’s announcement of 3 percent price hike from March 2017 onwards could support margins going forward.
Analyst: Vaibhav Agrawal, Head of Research & ARQ, Angel Broking.
Alkem is one of the largest pharma companies in the domestic market. The company has a small business in the US with about 35 ANDAs and the company is expecting to grow the US business aggressively. In the domestic market, the company has two business segments i.e. Acute and Chronic.
While the company has established as a dominant player in acute business, in chronic it remains a relatively new player. This chronic business is growing fast and it is the key of its growth going ahead. Angel Broking has a target of Rs 2,260 on this stock and one can buy this stock on dips.
Natco has been a multi-bagger stock. The company has an interesting pipeline of products which includes some blockbuster drugs which are likely to go off patent.
The monetisation of its ANDA pipeline remains its near-term trigger. The company is awaiting a verdict of one of the patents of Teva's Copaxone. The positive outcome will be positive for the stock and Natco along with its US partner will launch the generic of this drug.
The recent quarter results were good, mainly aided by the launch of generic Tamiflu. Angel Broking is positive on the stock and has a price target of Rs 925.
MIL’s major export revenue comes from the UK (73%), followed by the US (14%) and the balance from ROW. Export constitutes nearly 75 percent of the company’s total revenue.
The company is likely to report healthy growth over the next 2-3 years on the back of a recovery in the UK market, strong growth in the US market and with it tapping newer international geographies like the Middle East countries. Angel Broking has a buy rating on the stock and target price of Rs 107.
Lakshmi Vilas Bank (LVB)
LVB is a South-based private sector bank with major business (50.2%) concentrated in the state of Tamil Nadu. At the end of CY2015, Axis Bank group executive, Parthasarathi Mukherjee, joined LVB as MD & CEO, which was a sign of relief especially after the frequent exits in top management from 2011-2015.
Since then, LVB has successfully hired the top executives from other banks. Since then, the bank has revamped its strategy for increasing its retail, SME and Agri business. Management has taken a slew of measures to improve CASA ratio to further reduce the cost of funds and strengthen fees based income to boost RoA.
Results are visible in Q3FY17 numbers as Bank’s CASA increased from 16.58% to 21.42% yoy. NII grew 17.4% yoy. Bank’s ROA and ROE improved from 0.7% and 11.64% to 0.98% and 18.8% respectively on yoy basis.
Angel Broking believes that scaling up of the liability franchise led by CASA growth, higher contribution from other income and prudence approach to alleviate bad loans will drive its profitability and propel return ratio. It has a price target of Rs 174 on this stock, and one can accumulate this stock on dips.
KEI is a player in cable and wires. The order book (OB) stands at Rs 3,233 crore which has grown by 28 percent in the last 3 years due to strong order inflows from State Electricity Boards, Power grid, etc.
KEI’s export (about 8% of revenue) is expected to reach a level of 14-15 percent of sales in the next two years with higher order execution from current OB of Rs 180 crore and participation in various international tenders worth Rs500cr.
Angel Broking expects a strong 26 percent growth CAGR over FY2016-19 in exports. It expects KEI to report net revenue CAGR of 14 percent to Rs 3,445 crore and net profit CAGR of 26 percent to Rs 123 crore over FY2016-19E. The domestic brokerage firm maintains buy with a target price of Rs 207.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol 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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