Domestic brokerages are bullish on Samvat 2073, the Hindu calendar year, thanks to a slew of positive domestic triggers such as good monsoon, lower inflation, roll-out of Goods and Services Tax (GST) and infrastructure reforms. However, geopolitical tension between Indian and Pakistan and global factors such as US Presidential election and Federal Reserve's monetary policy may lead to a volatile road ahead for markets, believe experts.
"Strong pick-up in earnings and return to double digit growth in revenue is crucial for markets to move up on a sustainable basis. We remain bullish on markets," said brokerage Motilal Oswal Securities in a research note.
Samvat 2072 is ending with gains of about 11 per cent on the benchmark indices, which have come after significant volatility. With less than a week left for Samvat 2073 to begin, we have compiled ten stocks recommended by various brokerages to buy this Diwali:
Motilal Oswal Securities
1) HDFC Bank (Target price: Rs 1450)
Over the last 12 years, HDFC Bank's market share has increased significantly in (1) retail loans, (2) low-cost deposits and (3) profitability, indicating the strength of its franchisee. Strong fundamentals and near-nil stress loans would enable the bank to gain market share. Further, continued strong investment in people and branches indicating management positive outlook on business. RoEs are expected to be the best amongst private banks at nearly 20 per cent.
2) LIC Housing Finance (Target price: Rs 748)
LIC Housing Finance, the second largest housing finance company, will be the biggest beneficiary of falling GSec yields as more than 80 per cent of borrowings come from capital markets.
"We believe LIC Housing should sustain over 2 per cent incremental spreads in coming years, which would boost its earnings and RoE. We estimate 22 per cent EPS CAGR over FY16-19 with consistent RoEs of nearly 20 per cent which should drive re-rating," said MOSL.
3) Bharat Electronics (Target price: Rs 1450)
Bharat Electronics is well positioned to benefit from the rising defense expenditure supported by a) strong manufacturing base (capacity utilization of nearly 60 per cent) and execution track record, b) relationship with defense and government agencies, c) strategic collaboration with foreign technology partners for new products development d)in-house R&D capabilities (R&D spend at 8.2 per cent of revenues) and e) Increased focus on exports to friendly countries.
4) Amara Raja Batteries (Target price: Rs 1257)
Amara Raja is India's second-largest lead-acid battery manufacturer (next to market leader Exide), with market leadership in telecom and UPS segments. "Stable competitive environment, significant FCF generation (Rs 2.6 billion over FY16-18) and stable RoE of 25 per cent, coupled with potential shift from unorganized to organized players when GST rolls out is to sustain high growth trajectory.
5) Bajaj Electricals (Target Price: Rs 349)
A well-entrenched and expanding distribution network (2,200+ distributors, 4,000+ dealers, 5 lakh+ retailers) should enable Bajaj to capitalise on demand revival and regain lost market share. Improving cash flows, core WCC, return ratios and reducing debt/equity strengthen our view that the stock deserves higher multiples. Based upon Rs 19 earnings on FY18E; we value the stock ~18x on FY18E earnings and arrive price target of Rs 322 and Rs 349 over the next 3-4 quarters.
6) Lupin (Target Price: Rs 2,050)
After a 25-28 per cent fall from its peak, we believe most of the negatives are priced in for LPC and present a great opportunity to BUY this stock at attractive valuations (below 18x on FY18E EPS). "At CMP, the stock is trading at 21.3x FY17E EPS and 17.7x FY18E EPS, a hefty 25% discount to the trailing three-year average multiple. US FDA clearance for the Goa facility would be the key trigger in the near term," said the brokerage. Buy at CMP and add on declines
7) Allcargo (Target price: Rs 215)
Allcargo has a strong presence in the Multimodal Transport Operation (MTO) business through wide network of ECU Line. It also has a strong hold on domestic MTO business and continues to perform strongly in the MTO segment despite sluggish container shipping market We estimate the MTO segment to grow at nearly 6.2 per cent in FY17 and ~5.4% in FY18
"Relationship with shipping lines, vast experience in logistics business and presence in other verticals (MTO) should help Allcargo to outperform most of its peers in the CFS segment,".
8) Mahindra & Mahindra (Target price: Rs 1541)
In the auto segment, the brokerage expects volume growth to moderate to single digits in FY17. In FY18, we expect demand growth will benefit from full impact of likely rural recovery, launch of petrol variants for XUV500 and Scorpio and new product launch. Good monsoons is also likely to keep tractor demand robust in FY17 and the impact will likely roll over to FY18.
"Profit margin for M&M's auto segment is likely to stay subdued. However, tractor business is expected to witness strong margins due to healthy demand recovery. Overall, increased share of tractor revenues will be positive for overall EBITDA margins," said Kotak Securities.
9) Axis Bank
Axis Bank has outpaced the industry growth rate in loan book (19 per cent CAGR over FY12-16), led by a 39 per cent CAGR in retail loans. Well capitalised balance sheet will help the bank in growing its loan book by more than 20 per cent over the next 2-3 years.
"We believe the current corrections in the stock gives long term investors an opportunity to enter the stock. We upgrade the stock to a 'buy' with a target price of Rs 630.
10) Equitas Holdings
Equitas was one of the ten NBFCs to get the license to start a small finance bank. As the entire book of Equitas qualifies for Priority Sector Lending, meeting the 75 per cent target will not be a challenge. Sizeable and diversified loan book will keep it ahead of other upcoming SFBs. "We maintain Buy on the stock, with a target price of Rs 235," said Angel Broking.