2021 was a great year for the benchmark indices. Sensex scaled the last two milestones --50,000 and 60,000-- in the current year itself. It crossed 50,000 for the first time on January 21, 2021, and the 60,000 mark on September 24, 2021.
However, the roller coaster ride started when the concerns over rising Omicron cases spooked investors. Dalal Street saw a big crash on December 20 as Sensex plummeted over 1,600 points tracking losses across the board.
On a year-to-date (YTD) basis, the benchmark BSE Sensex gained 20.25 per cent to 57,420 till December 27. On the other hand, broader indices, the BSE Midcap and BSE Smallcap, have advanced 36 per cent and 57.5 per cent, respectively, during the same period.
Amid the ongoing volatility in the market, experts say that the market fall can be used as an opportunity to gradually accumulate the companies which will be winners in the long run.
Are you looking for some stock ideas for your portfolio? Here are some top stock picks by HDFC Securities for the year 2022:
1. Aditya Birla Capital Limited (ABCL)
The brokerage firm noted that ABCL focuses on leveraging technology and analytics to grow revenue, improve customer experience, optimise cost and build robust, scalable systems. The company is implementing a common branch infrastructure, which will allow a number of its businesses to enter new locations with a lean and low-cost model and cross-sell products, which could lead to a saving of about Rs 40 crore.
However, stiff competition from peers and worsening of asset quality in the lending book due to the third wave of Covid pandemic and/ or slowdown in the economy are key concerns for the stock.
"GAIL is planning to expand in petrochemicals, speciality chemicals and renewables to supplement growth in its core business of natural gas marketing and transportation. It plans to bid for new pipelines put on offer by the regulator," HDFC Securities noted.
Volatility in oil and gas prices, higher tariff reduction in existing pipelines and regulatory changes could impact its growth story in the near future.
3. Hindustan Zinc
The company is India’s largest primary zinc producer, with 77% market share including alloys and 80% market share without alloys. The Supreme Court allowed disinvestment of the Centre’s residuary 29.5% share in the open market in November. Post divestment, it is expected to command better valuation.
The brokerage firm said that the high operating efficiency is driven by fully integrated operations (with a captive power plant capacity of 485.5 megawatts) and low-cost, high-grade zinc reserves and with access to the bulk of lead-zinc deposits in Rajasthan through long-term agreements with the Government of India, hence the company should sustain as a low-cost producer of zinc over the medium term.
However, it added that the demand for zinc is very closely linked to the galvanized steel industry, which consumes approximately 70% of the zinc produced in India. The steel industry depends on the growth of end-user industries such as automotive, consumer durables, batteries, home appliances, construction, and infrastructure. Any downturn in any of these industries will impact the demand for galvanized steel. The company also faces regulatory and environmental risks as all mines are clustered in Rajasthan.
4. Ipca Labs
Ipca continues to maintain a leadership position in segments such as rheumatoid arthritis and orthopaedic and cardiac and anti-diabetic therapies in the domestic market.
"We are positive on Ipca Labs on the back of strong volume growth in domestic formulation across therapeutic areas, cost-competitive and consistent quality driving better business prospects in API segment, robust debt-free B/S and strong return ratios and iv) better traction in the international markets such as Europe and Asia," HDFC Securities said.
It noted that a change in the regulatory landscape; and negative outcome of key facility inspections by the US FDA may affect earnings prospects. Ratlam, Silvasa and Indore facilities continue to be under US FDA import alert. The addition of drugs in the National List of Essential Medicines (NLEM) could hurt the domestic business.
The brokerage house stated that the management guided for flat to low single-digit growth in FY22 due to a demanding base effect. The tractor market share though is up 190 bps YoY to 40.1%. M&M is targeting a 10x increase in the Agri implements segment to drive growth in the medium term (Rs 12,000 crore market size by 2027).
Chip shortages, commodity price inflation and the possibility of a third wave of Covid are key risks going forward.
6. Max Financial
The brokerage house believes that over a long-term period, India’s highly underpenetrated life insurance space is attractively positioned to capture the huge growth opportunity. Large private players are in a better place to take advantage given their ability to push protection business by leveraging strong brands and existing networks.
Rising competition, especially via digital disruptors, poses pricing and volume risk for traditional players. High promoter pledging is one of the reasons why the stock has been given a lower valuation multiple compared to other listed peers. As of September 2021, 57% of the promoter’s holding has been pledged to lenders.
7. Max Healthcare Institute Limited (MHIL)
MHIL enjoys higher average revenue per occupied bed (ARPOB) compared to peers largely due to a higher share of operational beds in metros/ northern urban areas (Delhi NCR and Mumbai) and a superior case mix. The company enjoys higher occupancy levels across network hospitals.
The company reduced its net debt significantly. Strong free cash flows and low debt provides adequate headroom to expand through brownfield, greenfield and M&A, HDFC Securities said.
It added that the delay in capacity addition, delay in improvement in payor mix and an unfavourable change in agreement with partnered healthcare facilities (trusts) would impact its operations and profitability. A substantial portion of the company’s healthcare operations are concentrated in North India; a regional slowdown or political unrest/disruption in NCR could impact its business.
8. State Bank of India (SBI)
The brokerage house believes that SBI is almost immune to any liability-side risks at this juncture, given its expansive, granular deposit base and government’s majority holding. It is better placed to curtail asset quality worries than many other large banks because of its quality of loan books. Moreover, ample provision coverage will curtail incremental loan loss provisions.
Given its size and exposure, increasing geographic penetration by newer private sector banks, Macroeconomic risk can lead to a faster than expected decline in market share.
9. Tech Mahindra
Tech Mahindra's net new deal TCVs remained significantly higher than the average quarterly deal wins of US$ 400 million -500 million. Tech Mahindra is well-positioned to expand a fair share of 5G network services and the company is experiencing a large deal strategy and customer-led approach.
Indian rupee appreciation against the USD, pricing pressure, higher attrition rate and retention of the skilled headcounts, strict immigration norms, and rise in visa costs are key concerns.
10. Zee Entertainment (High-risk pick)
The company’s pan-India viewership and focus on digital are likely to anchor growth over the long term. Apart from this, ZEEL’s OTT app Zee5 is well placed to improve its traction leading to revenue improvement and loss reduction.
"Media and Entertainment industry is highly regulated and competition, implementation of New Tariff Amendment Order (NTO 2.0) and increasing smartphone penetration and affordable data tariffs are key concerns. Besides, American investment firm Invesco’s ongoing allegations on favouritism over Zee Entertainment and Sony deal highlighted relatively poor corporate governance standards," the brokerage firm said.
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