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The Sensex closed at a record high on Thursday but the moot question is whether the momentum will continue. The answer lies in multiple risks that the Indian market may face in the next 6-12 months. The valuation quotient still remains a concern for small and midcaps. However, largecaps are relatively better priced, suggest experts.
Higher crude oil prices, falling rupee versus the dollar, escalating trade war tensions and political uncertainty are some of the factors which might cap the upside. Small and midcap stocks too are still not out of the woods. Experts said investors will be better off betting on stocks that are showing growth momentum and those that will benefit from the spending push by the government ahead of elections.
“Markets are trading at all-time highs despite a lot of headwinds like trade war tensions and rupee depreciation against the dollar. This rally is majorly fuelled by very few stocks like HDFC Bank, Kotak Mahindra Bank, Reliance Industries, Housing Development Finance Corporation (HDFC) and Tata Consultancy Services (TCS). However, the broader market is still not out of woods as the midcap and smallcap indices are trading far lower from all-time highs,” Hemang Jani, Head - Advisory, Sharekhan by BNP Paribas, said.
Jani added that investors should be selective in this market as valuation are little stretched and buy those stocks where earnings are strong and growth visibility exist. “Earning season for Q1 FY19 has kicked in with high expectation. Investors should keep an eye on this earnings season, if this season goes well and earning picks up, then we may see a broader rally in markets and higher levels in the near future,” he added.
Are you worried that the market is at record highs? Don’t worry, we have collated a list of 10 stocks from different brokerages that are still worth a buy at current levels:
Brokerage Firm: JM Financial
Apollo Tyres: Buy| Target: Rs 305| LTP: 264| Return 15%
Apollo Tyres (APTY) is favourably placed to capture the robust growth in domestic truck and bus tyre segment on strong OEM CV sales, the imposition of anti-dumping duty on Chinese tyres and a pick-up in replacement demand.
APTY should also benefit from the ramp-up in its low-cost Hungary plant operations, leading to entry into the European OE segment. The Hungary plant is slated to reach EBITDA break-even in 1HFY19 and match the production cost of existing Dutch plant in 2HFY19.
The company is estimated to reach optimum production, along with the anticipated 15-20% lower costs (vs. Dutch plant operations), by 2HFY20.
M&M Financial: Buy| Target: 625| LTP: Rs 477.45| Return 31%
JM Financial expects the return on asset (RoA) to improve going ahead due to 1) Good monsoon outlook and increased budget allocation which will boost farm income and accelerate recoveries for MMFS; 2) With incremental NPLs coming down and migration to 90DPD already completed, we factor credit costs of 180bps in FY19-20E (vs. 334bps in FY18); 3) management expects AUM growth to improve to 20% YoY with GNPLs reducing to 7% going forward.
The brokerage firm forecast earnings CAGR of 43 percent over FY18-20E led by revival in loan growth and improvement in asset quality. MMFS is well-placed to benefit from rural recovery driven by an improvement in higher farm related cash flows and an increase in government spending.
Navin Fluorine: Buy| Target: Rs 900| LTP: Rs 653| Return 37%
Globally, fluorine has become a leading choice to carry active ingredients in pharma and agrochemical applications, leading to rising interest in fluorine research.
Navin Fluorine (NFIL) boasts of five decades of expertise in fluorination and has a presence across the chain. Globally, there are only a handful of high-pressure fluorine-based production facilities and therefore, places NFIL in a unique position across the fluorine chain.
NFIL has entered into a JV with Piramal which will touch peak utilization in FY19 to give Rs 13 bn topline. Additionally, NFIL is investing in a new CRAMS facility with an investment of INR 1.1bn which will likely be commissioned by June 2019 and this provides visibility for continued growth.
Oberoi Realty: Buy| Target: Rs 550| LTP: Rs 489| Return 12%
Oberoi Realty has been reporting mixed operational results, with Goregaon/Borivali projects seeing steady demand, but Mulund project sales remaining muted after the launch. Entry in the Thane micro-market should be monitored as Oberoi enters a new regulatory jurisdiction with sales potential of 8-10msf.
JM Financial believes further business development activity would drive the upside from current levels as the company prepares to scale-up its operations with access to low-cost funds and a strong balance sheet.
Sobha: Buy| Target Rs 600| LTP: Rs 484| Return 24%
Sobha’s operations have seen a material uptick as it consolidates its position in the Bangalore market and on increasing demand in Gurgaon and Kochi.
With 11msf of phase launches in the pipeline and plans for another 4-5msf of new launches, we expect continued improvement in its operating performance.
Also, its successful entry into the affordable housing segment could present a new business opportunity. While new launches would be primarily on a JD/JV model, monetisation of its 200msf land parcel remains the key to improving its return profile.
Brokerage Firm: Sharekhan
TVS Motor: Buy| Target: Rs 725| LTP: Rs 579| Return 25%
BMW, the partner of TVS Motors (TVSM), will launch premium motorcycles in India on July 18, 2018, thus strengthening BMWTVS position in the space.
TVS Motor Company remains our preferred pick in the 2W space. With new launches and enhanced distribution reach, TVSM is well poised to gain market share in the 2W space.
This coupled with margin expansion would lead to 39 percent earnings CAGR for TVSM over FY2018-FY2020. TVSM is the fastest-growing company in the 2W segment and remains our preferred pick in the space.
HDFC Bank: Buy| Target: Rs 2470| LTP: Rs 2146| Return 15%
HDFC Bank (HDFCBK) has proven its expertise in managing and underwriting retail and other loans, as it has been able to maintain best-in-class operating parameters over time.
HDFC Bank witnessed strong growth in personal loans (10.9% of advances, up 43.6% y-o-y) and credit cards (5.5% of advances, up 38.9% y-o-y) during FY2018.
HDFC Bank has been a strong performer for a long time. Sharekhan expects this momentum to continue as the environment is conducive for private banks such as HDFCBK and there are many opportunities to boost business growth and grab market share.
V-Guard Industries: Buy| Target: Rs 220| LTP: 200.65| Return 10%
New product categories like air coolers and kitchen appliances continue to grow at a targeted rate equally supported by inorganic growth of the switchgear business in last year.
Aggressive advertising & promotional spend (A&SP) incurred last year as along with the continued spend in A&SP during the current year, with the purpose of positioning V-Guard as a Pan Indian player, is enabling the company to grow revenues in new product categories at targeted rate.
With a continuous emphasis on gross margin expansion, the management has guided for 100 bps improvement in gross margins annually.
Under the context of softer growth outlook in Southern markets led by Kerala and revenue from stabilizer getting impacted due to erratic weather slowing down Room AC market, Sharekhan tweaked its earnings estimates marginally expecting 24 percent CAGR during FY2018-2020.
TCS: Buy| Target: Rs 2200| LTP Rs 1979| Return 11%
Sharekhan maintains a Buy rating on TCS with a revised price target of Rs.2,200. TCS beats our as well as street estimates in constant currency (CC) revenues growth and EBIT margin.
Digital business continues to drive growth momentum, registers a growth of 9 percent QoQ and 45 percent YoY. Traction for TCS’ digital offerings along with recovery in BFSI vertical provides promising revenue visibility for FY19/20.
Zee Entertainment Enterprises: Buy| Target: Rs 680| LTP: Rs 540| Return 25%
Sharekhan maintains a buy on Zee Entertainment Enterprises Limited (ZEEL) with an unchanged price target of Rs. 680. Impressive content creation strategy to cater to both mass and urban audience, creating a strong foothold in TV and digital.
The stock's weakness is already factoring near-term concerns, long-term growth levers remain intact. ZEEL remains a preferred play on the structural media consumption theme and is poised to deliver a healthy 30 percent earnings CAGR over FY2018-FY2020E.
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