India’s stock markets created history this month as the Nifty 50 surpassed the 16,200 mark and the S&P BSE Sensex crossed 54,000. On a year-to-date basis, the Nifty index is up 16 percent, while the Sensex has gained almost 14 percent – beating fixed deposit returns by quite a margin.
The rally could be attributed to the trust that retail investors have shown in the markets during the pandemic. The record highs of the indexes were attained even though foreign institutional investors were net sellers in the past few months.
Strong economic data, positive commentary from the management of India Inc. in the June quarter results, low interest rates, a drop in COVID-19 cases, opening up of the economy as well as a rise in inoculations are some factors that could have triggered the risk-on sentiment.
“Corporate results have come in line with expectations across sectors. While the low base effect is influencing the year-on-year returns reported by large corporates, overall positive traction in the economy is turning out to be promising,” said Nimish Shah, chief investment officer – listed investments, at Waterfield Advisors. “On the back of this optimism, markets have continued to see healthy flows from local investors.”
While FIIs pulled out over Rs 11,000 crore from the equity markets, domestic institutions pumped in Rs 21,000 crore in July, of which mutual funds contributed about Rs 13,900 crore, signalling the possible return of retail investors, Shah said.
While the view remains positive on the markets, experts advise looking for stock-specific opportunities, especially in the broader market.
Naveen Kulkarni, chief investment officer at Axis Securities, said the market is welcoming the sequential recovery of key high-frequency indicators such as manufacturing PMI, GST collections and Google mobility data.
“The recent spate of IPOs and their success clearly indicates the appetite for mid- and small-cap stocks. Overall, we remain constructive on the market and we believe mid-cap, small-cap and large-cap value will be the key allocation themes. Any dips should be utilised to build positions in the recommended themes,” Kulkarni added.
Here’s a list of stocks that look fundamentally attractive chosen by experts for August:
Kshitij Purohit, lead international products & commodities, CapitalVia Global Research
Asahi India Glass is a value-added and integrated glass solutions company and a dominant player in both the automotive and architectural segments.
Over the next several years, Asahi India’s earnings are predicted to increase as it is about to take up some valuable projects, which means stronger cashflows, and this would result in a higher share value.
Deepak Nitrite has four major segments – basic chemicals, fine and specialty chemicals, performance products and phenolics.
The chemical industry seems bullish as of now and a wave in specific segments can lift all stocks. In the quarter ended June, Deepak Nitrite’s net profit tripled to Rs 302.63 crore and sales more than doubled to Rs 1,526.22 crore.
Ashok Leyland is the flagship company of the Hinduja Group with a long-standing presence in the domestic medium and heavy commercial vehicle segment. The company has a strong brand and well-diversified distribution and service network across the country with a presence in 50 countries.
Switch Mobility, Ashok Leyland’s electric bus and light commercial vehicle division, has signed a strategic partnership with Dana, a US manufacturer of drivetrain systems. Dana will make a minority investment in Switch Mobility and will be the preferred supplier of electric drivetrain components for the company’s e-bus and EV commercial vehicle offerings.
Godrej Agrovet is a diversified, research & development-focused agri-business company, aiming to improve farm productivity through products and services that sustainably increase crop and livestock yields. It holds leading market positions in animal feed, crop protection, oil palm, dairy and poultry and processed foods.In June, Godrej Agrovet acquired full control of a cattle breeding unit, which will have a direct impact on the company’s operations and revenue. Investors might consider holding the stock for larger profits.
Brokerage Firm: Axis Securities
ICICI Bank is a private lender with business operations spread across the retail, corporate and insurance segments, among others.
Higher loan growth, improving operating profit and a strong provision buffer, coupled with a strong deposit franchise, will help expand ROAE/ROAA (return on average equity/return on average assets) over FY22-23E. Valuation-wise, the bank has further scope for expansion vis-à-vis its peers.
State Bank of India is the largest public sector bank in terms of assets, deposits, branches, number of customers and employees and has a pan-India presence. The regulator has designated SBI as a domestic systemically important bank, underscoring that its continued functioning is critical for the Indian economy.
SBI remains the best play among PSU banks on the gradual recovery in the economy given its healthy provisioning coverage ratio, robust capitalisation, strong liability franchise and improved asset quality outlook.“We believe credit costs normalisation and improved operational performance will lead to double-digit ROE (return on equity) of 13-15% by FY22-23E. We maintain a BUY on the stock with a target price of Rs 510/share,” Axis Securities said in a report.
Federal Bank is a Kerala-based private lender that is in the insurance and NBFC business through its joint venture with IDBI and wholly owned subsidiary Fedfina. The bank follows a branch-light and distribution-heavy franchise strategy. The key positives are increasing retail focus, strong fee income, adequate capitalisation and prudent provisioning.
Given the strong underwriting standards, changing loan mix and strong retail deposit franchise, the bank’s valuation is expected to improve if asset quality trends are maintained and ROA improvement stays on track.
Equitas SFB offers a diversified suite of products across microfinance, small business loans, vehicle finance, housing finance, SME finance and NBFC finance.
Equitas is eligible for re-rating given its improving profitability, asset quality and return ratios. The bank recently approved the scheme of amalgamation (reverse merger) with promoter Equitas Holdings, which would ensure compliance with regulatory requirements.
This, coupled with its application for a universal banking licence, further supports the re-rating rationale.
Varun Beverages is the second-largest franchisee of PepsiCo in the world outside the US. VBL makes products including Pepsi, Mountain Dew, Seven Up, Mirinda, Tropicana Slice, Tropicana Frutz and Aquafina bottled water.
VBL is expected to register revenue/earnings CAGR of 17/53 percent, respectively, over CY20-23E on account of a low base in CY20. This growth will be driven by further inroads in underserviced south and west territories, distribution-led market share gains, debt reduction and positive cashflow generation.
VBL is valued at a premium of 17x its CY23 EV/EBITDA to arrive at a target of Rs 900/share.
Mold-Tek Packaging (MTEP), established in 1986, is the leader in rigid plastic packaging in India. It is involved in the manufacturing of injection-molded containers for lubes, paints, food, and other products. MTPL has seven processing plants and three stock points spread across India with a total capacity of around 41,000 MTPA.
Axis Securities expects Mold-Tek Packaging to register revenue, EBITDA and PAT CAGR of 18 percent, 23 percent and 30 percent, respectively, over FY20-23E.
For FY22, the management remains hopeful of scaling back to a positive volume growth trajectory despite Q1FY22 being impacted by the lockdown. At CMP, the stock trades at 17x PE FY23E which is at a discount to its 5-year average valuation of 31x PE.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.