Global headwinds, rise in crude oil prices, political stability, earnings not catching up, or just plain old profit booking are some of the key factors which can lead to volatility in equity markets.
The idea is to make a portfolio which can weather out all storms. Normally, it is a difficult thing to achieve because equities are not risk-free and external factors will impact your portfolio in one way or another.
Investors should focus on making a portfolio which should fall less than the market and outperform when the market starts rising. Well, a brilliant idea but a difficult thing to achieve.
To make such a portfolio, it should have stocks marketcap themes and across sectors to achieve benefits of diversification. There are many factors, both micro and macro, which would be important to consider when investors are planning to make a portfolio that can weather all storms.
“Our macro research looks at the effect of various cycles (industry, interest rate, commodity, exchange rate etc.), regulation, Govt. policy impact, top-down drivers, evolving themes etc.” SPARK Capital said in a report.
“Our management quality research looks at the ability of managements to deliver outperformance irrespective of the environment or cycles - gain market share, create new growth opportunities, build new efficiencies, being ahead of the curve on changes, reduce its cyclicality, have shock absorbers, balance sheet improvement etc.,” it said.
The report further added that they look at the management who can ‘walked the talk’ for us to gain confidence that the outlook is not an extension of their past. The portfolio bias has shifted from growth and cyclical to either value or quality defensives.
Here are few stocks as highlighted by SPARK Capital in Large caps (>USD 5 billion market cap) – Ashok Leyland, Bharat Forge, Yes Bank, UPL and Cipla. In the large mid-caps (USD 2 billion-USD 5 billion market cap) – GlaxoSmithKline Consumer, Voltas, Federal Bank and Thermax. In the mid-caps (<USD 2 billion market cap) – Aditya Birla Fashion, VIP Industries, Zydus Wellness, Blue Star, Finolex Industries and Persistent Systems.
How should one construct their portfolio?
Investors should be guided by their goals because if you are investing for the long run, equity still remains the top priority. At the same time, allocating a small part to fixed income is always justified for a variety of reasons, suggest experts.
“We believe, that the investor in the age bracket of 35-40 years should allocate at least 70-75 percent of his portfolio into equities/MFs, 20-25% in fixed income and the balance should be in cash,” Sandeep Chordia, Executive Vice-President - Strategy, Kotak Securities told Moneycontrol.
“For first-time investors with a corpus of Rs 10 lakh, it is advisable to invest larger share in mutual funds (i.e. 66-75 percent). For financially savvy investors, we would suggest the person has a 50:50 mix between direct equities and mutual funds,” he said.
We have collated stocks from various brokerage firms which can give up to 58% return in the next one year:
Brokerage Name: Angel Broking
Dewan Housing: BUY | Target: Rs 720| Return 38%
Angel Broking maintains a buy rating on Dewan Housing with a target price of Rs 720, backed by healthy capital adequacy and increasing demand for home loans DHFL’s loan book is expected to report 23 percent loan growth over next two-three years.
The domestic brokerage firm expects the company’s loan growth to remain 23 percent over the next two years and earnings growth is likely to be more than 28 percent. The stock currently trades at 1.9x FY2019E ABV. We maintain buy on the stock with a target price of Rs 720.
Karur Vysya Bank: BUY | Target: Rs 160| Return 58%
Angel Broking maintains a buy rating on Karur Vysya Bank with a target price of Rs 160. It had a fairly strong loan CAGR of 14.9 percent over FY11-17. However, FY17 was the year of consolidation and loan book grew by only 4.7 percent.
The domestic brokerage firm expects the loan growth to pick up to 11 percent over FY17-19, and the deposit growth is expected at 9 percent during the period.
Angel Broking expects KVB to post a strong loan book and earnings CAGR of 11 percent and 22 percent over FY2017-19E. The stock currently trades at 1.4x FY2019E ABV.
HSIL: BUY | Target Rs 510| Return 27%
Angel Broking maintains a buy rating on HSIL with a target price of Rs 150. HSIL Limited (HSIL) is an Indian company, which offers sanitaryware products, faucets, and glass bottles.
The company’s 46 percent revenue comes from building products division, 43 percent from Packaging products division and balance from others division.
The market is expected to grow at 10 percent CAGR going forward on the back of increasing disposable income, urbanization, evolving preferences and government initiatives (Swachh Bharat, Housing for All, Smart cities, etc.).
Siyaram Silk Mills: BUY | Target: Rs 851| Return 35%
Angel Broking maintains a buy rating on Siyaram Silk Mills with a target of Rs 851. The company has strong brands which cater to premium as well as popular mass segments of the market. Further, it entered the ladies' salwar kameez and ethnic wear segment.
Going forward, we believe that the company would be able to leverage its brand equity and continue to post strong performance.
Going forward, we expect the company to report a net sales CAGR of 12 percent to Rs 1,981 crore and adj.net profit CAGR of 16 percent to Rs 123 crore over FY2017-19E on back of market leadership in blended fabrics, strong brand building, wide distribution channel, strong presence in tier II and tier III cities and emphasis on latest designs and affordable pricing points.
At the current market price, the stock trades at an inexpensive valuation. We have a buy recommendation on the stock and target price of Rs 851.
Maruti Suzuki Ltd: BUY | Target:Rs 10619| Return 20%
Angel Broking maintains a buy rating on Maruti Suzuki with a target price of Rs 10,619. The Automobile sector is expected to benefit from the GST implementation.
The sector has seen a pick up in the volumes in FY17 as there were several positive factors like a normal monsoon and lower interest rates.
Due to the favorable business mix, the company has also been seeing improvement in the margins. The company has already moved from 11-12 percent EBITDA margin range in FY14 to current 17 percent margin range in Q2FY18.
Together with higher operating leverage at Gujarat plant, increasing Nexa outlets, and improving business mix, we believe that company has further room to improve its margins.
Brokerage Firm: Sharekhan
Bharat Electronics Ltd: BUY | Target: Rs 220| Return 46%
Sharekhan maintains a buy rating on Bharat Electronics with a target of Rs 220. Bharat Electronics Limited (BEL) reported better-than-expected revenue performance in Q3FY18, while margins missed the mark during the quarter. Healthy order book position provides strong revenue visibility. Preferred defence play, maintain Buy with an unchanged price target of Rs 220.
Birla Corp: BUY | Target Rs: 998| Return 33%
Sharekhan maintains a buy rating on Birla Corporation with a target price of Rs 998. For Q3FY2018, Birla Corporation Limited (BCL) reported consolidated operating profit of Rs 139 crore, lower than our and street estimates on account of higher operating cost.
The cost rationalisation and ramp-up at acquired assets remain key for improvement in profitability. The brokerage firm maintains a positive view on BCL.
Kajaria Ceramics Ltd: BUY | Target: Rs 611| Target Rs 7%
Sharekhan maintains a buy rating on Kajaria Ceramics with a target of Rs 611. The net earnings of Kajaria Ceramics (Kajaria) declined in Q3FY2018 due to higher power costs, despite improvement in volumes. Organised tile players are facing near-term headwinds, but the lowering of GST rate on tiles gives a silver lining.
Despite near-term headwinds, the structural, long-term growth story of the sector remains intact. Sharekhan believes that the recent correction provides an opportunity for the long-term investors.
Britannia Industries Ltd: BUY | Target: Rs 5500| Return 14%
Sharekhan maintains a buy recommendation on Britannia Industries with a target price of Rs 5500. Britannia’s Q3FY2018 revenue grew by 13 percent on a comparable basis due to double-digit volume growth. The Operating efficiencies led to margin expansion of 225BPS to 15.5 percent.
The Innovation and distribution expansion remain the key growth drivers for Britannia. The company is planning to launch 50 new products in the biscuits and adjacent categories by the end of FY2019.
Benign input prices and operating efficiencies are some of the key factors which are likely to drive margins in the near term.
Divi’s Laboratories Ltd: BUY | Target: Rs 1275| Return 21%
Sharekhan maintains a buy call in Divi’s Laboratories with a target price of Rs 1275. The company reported muted Q3FY2018 numbers. The net sales grew by 6.3 percent to Rs 1037.9 crore.
Success resolution of import alert and warning letter in a short span was a big positive. Sharekhan anticipates business to improve in the days to come and hence, maintain Buy rating with an unchanged target price of Rs. 1275.Disclaimer:
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