12 stocks to buy when market corrects

There were high expectations from the Narendra Modi government last year with regards to reforms and measures to kick-start the investment and capex cycles, helping turn around the economy. However, the tepid growth in Q4 earnings showed that there's much left to be done.

There has been a continuous downgrade in investor expectations as far as forward earnings estimates are concerned. Volatility in the global markets has also gone up significantly. There are heightened concerns related to events in the Euro zone regarding Greece and expectations of a rate hike by the US Federal Reserve. These too have led to knee jerk reactions in our stock markets.

"We feel bleak Q4 results and costly valuations dent domestic equity markets in the recent past. In last two quarter, we had seen aggregate net profit of Nifty stock declining by 5-7 per cent year-on-year in each quarter," says Sunil Jain, head, equity research, retail, Nirmal Bang.

Since the beginning of the ongoing financial year, key benchmark indices BSE Sensex and NSE Nifty have plunged around 7 per cent to 26,370.98 and 7,965.35 on June 11. Both the indices had jumped nearly 25 per cent in 2014-15.

"Historically, any bull run witnesses 10-15 per cent correction at some intervals. In the case of the current fall in the market we see multiple reasons such as global factors like commodity slowdown, Euro zone crisis and the risk of US fed rate. Also, last year the rally in the stock market was quite sharp and was based on optimism of faster turnaround in the economy, especially after the formation of the new Government," says Abhishek Anand, fund manager, Centrum Broking.

"While the Government has been active in carrying out reforms to accelerate growth rate, it takes time to see policy decisions transforming into actual results at the ground level. Further, there has been deferment of growth to the second half of 2015-16 by corporates, there is a prediction of below normal monsoon and slowdown in rural demand all of which are adding to the fall," he adds.

WILL THE MARKET FALL FURTHER?
Expectation of weaker monsoon may put further pressure on the domestic equity market in the near term. The India Meteorological Department (IMD) downgraded its forecast for monsoon from 93 per cent to 88 per cent of the long-period average. In India, around 70 per cent of the total agriculture is still dependant on rains.
On triggers that indicate the equity markets may fall further, Nitasha Shankar, head of research, YES Securities, says: "The biggest concerns for the markets are of course related to the monsoons as well as the expected turnaround in the corporate earnings."
The cautious commentary of the Reserve Bank of India (RBI) on June 2 that indicated that the room to cut rates further during this year was restricted, has also affected sentiments.
"Expectations of inflationary pressures spiralling due to deficient monsoon, increase in the US Fed rates and negative news flow from the Euro zone could keep markets under pressure," says Vaibhav Agrawal, vice president and head of research, Angel Broking.

INVESTMENT OPTIONS:
Here are a few stocks you can bet on if the market continues to slip further from here:
1. Maruti Suzuki
Recommended by: Nirmal Bang
Maruti Suzuki India's (MSIL) stock still offers room for an upside backed by a strong 38 per cent earnings growth likely over 2015-16E and 2016-17E. It remains the best play on domestic automobile sales recovery with its strong presence in urban as well as rural areas. Further, improving product mix because of rising revenue contribution from new models along with better operating leverage and falling discounts will result in margins improving by around 200 basis points to 15.5 per cent in 2016-17E from 2014-15 levels. On June 11, the share price of the company was at Rs 3,702.25.

2. Inox Wind
Recommended by: Nirmal Bang
Favourable wind power policy of government, well-accepted product from Inox Wind and healthy order book makes Inox Wind an attractive choice. Around 29 percent CAGR growth in revenue between FY15-17 and 36 per cent CAGR operating profit growth between FY15-17 make it a high growth company deserving premium valuation. The brokerage house expects the company to report EPS of Rs 20 and Rs 24 in 2015-16 and 2016-17, respectively. Share is trading at forward price-to-earnings ratio of 16 for 2016-17 looks attractive. On June 11, the share price of the company was at Rs 391.50.

3. Motherson Sumi Systems (MSSL)
Recommended by: YES Securities*
MSSL, along with its subsidiaries, the company is a leading global manufacturer of auto components that include rear-view mirrors, plastic components, wiring harnesses, etc. It is one of the largest manufacturers of rear view mirrors, IP modules and bumpers in Europe. The company's deep relationships with key OEMs (Original Equipment Manufacturers) has helped it in getting steady orders for its products as concentration on expanding model range and premiumisation will lead to increasing content per car. Its strong technology partnerships and higher level of backward integration as compared to peers, places it in a sweet spot competitively. A turnaround in the domestic as well as in the global auto industry will help in improving performance of the overseas subsidiaries that in turn will increase profitability for the company. On June 11, the share price of the company was at Rs 478.55.

4. Eicher Motors
Recommended by: Angel Broking
Leadership position and strong pricing power in the two wheeler business "Royal Enfield" coupled with capacity expansion are expected to drive earnings. Also recovery in the commercial vehicle industry along with new product introduction in the heavy commercial space would further aid earnings growth. The brokerage house is positive on the stock with a price target of Rs 19,897. On June 11, the share price of the company was at Rs 17,234.35.

5. Marico
Recommended by: YES Securities*
Marico has transitioned from the commodity business of manufacturing coconut oil to being a dominant player in the branded hair care and edible oil segments. By focusing on hair care, health care, and skin care, Marico has strengthened its position in the beauty and wellness market both in domestic markets as well as in other emerging markets. It has strong brands in its product categories which have not seen any let up in demand from the rural side despite the general slowdown seen in the segment by peers. Over the last few years, Marico has grown inorganically to widen its product portfolio and to expand internationally. Its return on capital employed (RoCE) has moved up consistently making it an attractive play in the FMCG category. On June 11, the share price of the company was at Rs 405.95.

6. Infosys
Recommended by: Angel Broking
Infosys has given its future revenue (in dollar terms) growth guidance for 2015-16 at 10-12 per cent on constant currency basis. The brokerage house expects the company to post around 7.7 per cent USD revenue growth in 2015-16. By 2016-17, the company expects to lead the industry growth and reach a milestone of achieving sales of $20 billion by 2019-20. Also, the company plans to utilise cash properly through increased dividends and acquisitions, so that it can increase its capital efficiency. One can buy a stock for a target price of Rs 2,570. On June 11, the share price of the company was at Rs 2001.85.

7. Bata India
Recommended by: Motilal Oswal
Stock declined nearly 30 per cent over  last three months due to lower than expected quarterly result. However, current valuation is attractive and an opportunity to buy. Bata is structurally on the right track and will be a significant beneficiary of a revival in discretionary demand. We believe the company's investments in new sales channels - franchisee model in tier-2/3 cities and launch of e-commerce model are steps in the right direction. With a massive restructuring exercise, Bata has evolved from being a low growth, loss-making company to one that can boast on all key parameters - growth, profitability and cash generation. The brokerage house believes its three-year average P/E multiple of 31x rightly reflects strong consumer franchise and growth potential. On June 11, the share price of the company was at Rs 994.35.

8. ICICI Bank
Recommended by: Angel Broking
Sustained improvement in net interest margins (NIM) and operating efficiency, along with the bank's substantial branch expansion in the past four to five years and strong capital adequacy have positioned it to grow at least a few percentage points faster than the average industry growth rate. Improvement in NIM and decent credit growth are expected to drive 18 per cent CAGR in net profit over FY2015-17E and enable a RoE of 16.3% by FY2017E. On June 11, the share price of the company was at Rs 288.55.

9. Bajaj Auto
Recommended by: Centrum Broking
The company is the largest three wheeler (3W) and the fourth largest two wheeler (2W) maker in India. In FY2015 it had a domestic market share of 39 per cent in the 3W segment and 11 per cent in overall 2W (17 per cent in motorcycles). Exports contribute around 46 per cent to Bajaj Auto's annual revenue. With excellent brands and a reputation for reliable product quality, the enjoys the highest margins in the 2W industry. It owns 47 per cent stake in KTM AG, an Austria based sports motorcycle company. It has a strong brand loyalty in the motorcycle space and is well poised to regain momentum in the 2W market with introduction of new products and upgrades. There is also expectation of market share gain in 2 wheelers. This coupled with the growth in exports and 3W is likely to drive revenues upwards going ahead. On June 11, the share price of Bajaj Auto was at Rs 2,207.55.

10. Cadila Healthcare
Recommended by: Centrum Broking
Cadila Healthcare is India's 5th largest pharmaceutical company. It has global operations with around 50 per cent of revenue coming from markets like USA, Europe, Japan, Brazil, South Africa and 25 other emerging countries. In 2014-15, Cadila filed 38 ANDAs and has received 8 approvals. In the domestic market, Cadila launched 55 (19 first time launches) products in the previous financial year including line extensions. Further, the company has 10 vaccines in the pipeline, of which it expects to launch one vaccine in India in 2015-16. At present, the company has a pipeline of 260 filings, 99 approved and 161 ANDAs pending for approval. For FY2016E, the company has guided a revenue of Rs10,000 crore with operating profit margins at 21 per cent led by US business and a double-digit growth in India. Considering the growth prospects of Cadila led by its robust filings in the US market and the pick-up in emerging markets, the brokerage house seems positive on Cadila. On June 11, the share price of Cadila was at Rs 1,756.

11. KEC International
Recommended by: Nirmal Bang
Driven by better margin transmission orders, stabilisation of SAE Towers and cable business and completion of legacy projects in railway and water segments, KEC is poised to register a healthy expansion in its operating margin profile. The brokerage house is bullish on KEC International and sees a healthy rise in return ratios (RoE likely to rise from 5.6 per cent in 2014-15 to 17.8 per cent in 2016-17E) on the back of  reasonable valuation, high scalability potential owing to a strong transmission capex outlay and strong international order inflow. On June 11, the share price of the company was at Rs 117.

12. Simplex Infrastructures
Recommended by: YES Securities*
Simplex Infrastructures is a well-established EPC player with strong and diversified order book catering to various segments like building and housing, power, roads and railways, marine. It has demonstrated a good operational performance even in the weak business environment over past 3-4 years, when the industry has struggled with order cancellations, declining margins and high debt. Given its strong order book and bid pipeline, stable margins and superior management quality, the company is well placed to benefit from economic recovery. On June 11, the share price of the company was at Rs 386.90.

*YES Securities (India) is a wholly-owned subsidiary of YES BANK Limited. The analyst hereby certifies that he has not served as an officer, director or employee of the subject company whose securities are discussed herein. YSL or its associates have not received any compensation or other benefits from the subject company or third party in connection with the securities discussed herein. The views expressed are based solely on information available publicly/internal data/ other reliable sources believed to be true but no representation, warranty, express or implied, is made as to their accuracy, completeness, authenticity or validity. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take independent professional and/or tax advice before investing.