The festival of colour, Holi, is here. The festive signifies the victory of good over evil, the arrival of spring, and the end of winter. But, for investors, it is time to add more variety to their portfolio by adding stocks from different sectors.
The S&P BSE Sensex rose by about 19 percent since last Holi which was celebrated on 13 March 2017, Monday. The recent correction seen in the month of February has slowed the momentum on D-Street, but analysts say that don’t fear the colour red on Street.
The colour red is a synonym for a fall or correction. We have seen nearly 6 percent fall in the benchmark indices and doubled digit cuts in many stocks from small and midcap space.
Investors should welcome the colour ‘red’ because that would give them the opportunity to buy into quality stocks on declines.
“Holi the ancient festival of colours gives investors a message: People can enjoy the festival only if they allow the (inconvenient) application of colours. Similarly, equity markets allow for gains only if participants are willing to bear the (inconvenient) volatility,” Anshul Saigal, Portfolio Manager & Head –PMS, Kotak Mutual Fund told Moneycontrol.
“Contrary to popular belief – Red colour in stocks should not be feared, it should be welcomed. Maximum returns are generated after the widespread application of Red colour in stocks,” he said.
A recent case in point is the Demonetisation period, wherein Nifty saw Red and fell from 8800 levels to 7800 levels. That formed a nice platform for the ensuing Green colour in stocks and markets rallied to break above 11,000 to hit a new high of 11,171.55 earlier in the month of January.
Unlike 2017, 2018 will be a year of high volatility and uncertainly as we are getting closer to an election cycle. With US Federal Reserve planning to raise rates more than 3 times could lead to a fair bit of volatility in near future on the D-Street, suggest experts.
Global economic growth is strong but that is coming back with higher inflation which could lead to more rate hikes which in turn would lead to higher borrowing cost hurting corporate profitability.
An investor can take cues from the Budget 2018 which had plenty of sectors which were rural-focused and are inclined towards infrastructure building.
“This year’s budget was focused on improving the standard of living of the people living in rural areas. Allocations are made in health insurance, doubling farmer income, and fixing MSP at 1.5x cost of produce,” Saurabh S Jain, MD, SSJ Finance & Securities told Moneycontrol.
“We believe companies generating more than 70-80% of revenues from rural India will benefit immensely. We like stocks such as Godrej Agrovet, Ujjivan Finacial Services, and Escort Motors,” he said.
He further added that after being lackluster for last 2-3 years IT stocks look attractive based on beaten down valuations and a weakening rupee. “We will advise investing in quality IT stocks where our preferred picks in the sector are TCS, Infosys and HCL Tech,” he said.
We have collated a list of top ten stocks which could create wealth for investors:
Soumen Chatterjee, Guiness Securities
HDFC Bank & IndusInd Bank:
IndusInd Bank: Target Rs1880| Return 12%
HDFC Bank: Target Rs2080| Return 10%
Both HDFC Bank and IndusInd Bank are trading around 29 times of their trailing earnings & Price to Book of over 4.5 times.
Recently, the RBI has revised the NPA Reporting framework for quicker NPA recognition, this will make PSU Banks to provide higher provisions and whatever the recapitalized funds they have received will move in this cause rather than for growth.
In another way round, this will help quality private sector banks to further consolidate their position in the market and move ahead in the competition. (Target HDFC Bank: 2080 / Support: 1800-1850) & (IndusInd Bank Target: 1880 / Support: 1630)
Eicher Motors: BUY| Target Rs31200| Return 14%
The low competitive threat for RE is a big boost for the Eicher. The automaker has reported good Q3 numbers; PAT went up by 24.5% at Rs 520.5 cr (YoY).
The company maintains an industry-leading operating margin of around 31.2 percent and Return on Equity (ROE) of over 32 percent.
The stock is trading at a rich valuation of 37-38 times of its trailing earnings. Such high valuation likely to be sustained going forward as we expect RE sales to hit the landmark of 1 lk units/month by early next year.
NOCIL: BUY| Target Rs250| Return 29%
NOCIL is the largest rubber chemicals manufacturer in India has reported excellent Q3 numbers. The net profit rose 81 percent to Rs 45 crore and revenues rose 27 percent to Rs 249 crore (YoY).
Improved efficiencies with a change in product mix and higher capacity utilization at Dahej facility augurs well for the company. (Target Price: 250 – discounting the stock to trade at 22 times of FY19E EPS 11.36; Low Debt in books at Rs 66 cr versus Net-worth of Rs 760 cr)
NMDC: BUY| Target Rs185| Return 43%
Earnings trajectory looks promising with better realisation, despite soft global iron ore prices. The stock is trading at a very attractive valuation of 12.8 times of its trailing earnings.
Strong demand from domestic steel players will remain the key growth driver. Target Price 185 (Stable earnings visibility with ore prices likely to bottom out soon in the medium term).
Saurabh S Jain, MD, SSJ Finance & Securities:
Godrej Agrovet: BUY| Target Rs 650| Return 7%
Godrej Agrovet Ltd is a leading animal feed company in India. The large portion of this market is unorganized and hence presents a huge opportunity.
We expect company revenues to grow by 10 percent CAGR from Rs 4,911 crore currently to Rs6536 crore by FY20E. The company is expected to post a PAT of Rs 450 crore in FY20E. The stock can be bought now with a price target of Rs 650.
Ujjivan: BUY| Target Rs 450| Return 20%
Ujjivan Financial Services Ltd is a microfinance company focused on providing finance to the unbanked rural population. It has emerged stronger after demonetization which caused transient depression in the sector. We recommend buying with a target price of Rs 450 based on 2.5x FY20E ABV.
Escorts: BUY| Target Rs 1,150| Return 29%
Escorts Ltd is a leading manufacturer of tractors and will benefit from rising farm incomes. In FY17 tractor volumes grew by 24 percent and EBITDA margin expanded by 280 bps which led to almost doubling of PAT to Rs 160 crore.
We expect Escorts to continue delivering a robust performance, with 40 percent PAT CAGR over FY17-19E, mainly driven by revenue CAGR of 13 percent and EBITDA margin expansion of 300bp. We recommend to buy with a price objective of Rs 1,150 based on PE ratio of 18x FY19E.
TCS: BUY| Target Rs 3,500| Return 15%
TCS is a leading IT company and will benefit from weakening rupee and improving future outlook for IT sector. TCS is cautiously optimistic regarding the outlook for FY19, with its key vertical of BFSI and Hi-Tech expected to make a strong recovery.
We expect TCS to grow its revenues at a CAGR of 9 percent and 10.5 percent in USD & INR terms respectively over FY17-19E. We recommend to buy with a Rs 3,500 based on PE of 20x FY19E.
HCL Technologies: BUY| Target Rs 1,200| Return 28%
HCL Technologies is India’s fifth largest IT services company, with over 1,00,000 employees catering to more than 450 clients. The company has witnessed a strong traction for its digital services driven by Mode 2 and Mode 3 services coupled with a large number of IP partnership. Going ahead, we expect the ER&D space to continue to witness a double-digit growth led by a major contribution from Geometric and Butler America. We recommend to buy with a price target of Rs 1,200 based on PE of 18x FY19E.
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Source by:- moneycontrol