Themes to track: I would not go for sectoral themes in 2010. Mid-caps would be the stocks of choice. They can be re-rated and give extraordinary returns. Choose stocks from high growth industries like real estate, automobiles, infrastructure and banks.
Stocks to buy
Bilcare (Rs 477): The company will continue to track the growth in the pharma sector. It will be able to improve its margins thanks to its niche anti-counterfeit packaging technology.
Clutch Auto (Rs 45): This is a small-cap stock. The company offers a wide range of auto parts and is a market leader in its segment. Its products are exported to 40 countries. Clutch Auto dominates the replacement market, which accounts for around 50 per cent of sales.We expect 10-15 per cent returns from Indian equities in 2010. Markets might remain volatile due to push and pull factors: Gaurav Dua, Head of Research, Sharekhan.
Themes to track: Insurance companies, PSU divestment candidates and mid-cap pharma stocks are the three themes that will play in 2010. Auto, auto ancillaries, industrials, consumer durables and infrastructure sectors are expected to witness robust growth this year.
Stocks to buy: Max India, Bajaj Finserve, Lupin, IPCA Labs and Torrent Pharmaceuticals.
Max India (Rs 214): Max is a unique investment opportunity providing exposure to two sunrise industries— insurance and healthcare. A hike in insurance FDI can lead to a re-rating of the stock.
Torrent Pharma (Rs 390): Torrent has been one of the underowned mid-cap pharma stock due to lower margins at operating levels. However, with the completion of its investment phase, it can report robust earnings.We see investors buying growth over value in 2010. As a result, they will increase beta in their portfolios: Anish Jhaveri, CEO, Antique Stock Broking.
Themes to track: We remain overweight in industrials and banking while remaining underweight in defensives like utilities and consumer staples. Investors need to get their asset allocation right as asset classes carry different levels of risk. Having a diversified portfolio of stocks will help reduce the risk associated with equities. A favourable goods and services tax (GST) regime and the direct taxes code could positively impact markets in the medium term.
Stocks to buy: Our top 10 preferred holdings are Axis Bank, Bajaj Auto, DLF, ICICI Bank, ITC, Larsen & Toubro, Mahindra & Mahindra, ONGC, Reliance Infrastructure and Sterlite Industries.
Axis Bank (Rs 994): Net interest margins have risen in the past three quarters, led by a continuous fall in the cost of funds and increasing CASA (current and savings account) ratio. We expect the bank's net interest margins to improve further in the near term led by the growth in the CASA ratio and the expected rise in interest rates.
DLF (Rs 382): The company scores for the quality of its land bank and efforts to improve liquidity through asset sales. The negative sentiment surrounding the stock has been eliminated. Also, we expect the company's new city-centre launches to see good demand. It will also be the first real estate company to benefit from the recovery in the office and retail segments.The themes that will do well will be the ones based on domestic consumption. We see good opportunities in PSU banks: Abbas Merchant, Assistant Vice-President, Research, Jaypee Capital Services.
Themes to track: Along with banks, we see good opportunities in insurance, infrastructure, capital goods, auto and auto ancillaries. We expect the commodities sector to show robust recovery mainly due to improved demand from the developed world. The real estate sector is also expected to show good growth in earnings given increased domestic demand and restructuring of balance sheets. One factor that will help the markets go higher is the continued low interest rates all over the world.
Stocks to buy GE Shipping (Rs 268): The company is aggressively expanding into the offshore segment. It offers high return on equity and has more visibility compared to the rest of the sector. Also, it might tap the second-hand shipping assets market in 2010-11, when asset prices are expected to hit bottom.
Crompton Greaves (Rs 409): It reported impressive second quarter results with robust margin expansion across all business segments. The company is fundamentally the best placed among its peers to take advantage of the growing opportunities in the transmission and distribution business. The stock is trading at a significant discount to its peers which should narrow down considerably.The global economy could slow down from its 2009 growth rate. Growing on the base of the past year will be difficult: Shankar Sharma, Director, First Global.
Themes to track: We see the outlook for profits as being weak, given that a big rebound happened in 2009 on a low base of 2008. High-beta sectors like metals, real estate and infrastructure are most susceptible to a sharp fall. The risk to earnings is pretty high. On the other hand, autos and information technology companies could see good earnings pick up.
Stocks to buy
Bajaj Auto (Rs 1,731): The management's strategy of re-focusing on the 100cc motorcycle segment appears to be paying off as the company is recording sequential growth in volumes and market share. At 4.5 times its book value, the company offers 45 per cent return on equity. The Bajaj Auto stock can offer a return of 20-25 per cent over the next year.
Ranbaxy Laboratories (Rs 513): With most of the risks priced in, the stock offers a good risk-reward ratio from the perspective of the current market price. At 17 times 2010 earnings per share of Rs 27, the Ranbaxy stock is trading at a discount to the industry average of 21 times.Markets consolidating in a range cannot be ruled out if they run ahead of the deserved fundamentals in the short term: Hitesh Agrawal, Head of Research, Angel Broking.
Themes to track: For the next couple of years, we believe that investment opportunities lie in the banking and infrastructure space. Long-term prospects remain strong for banks. Large private banks continue to gain market share and have strong core profitability. Higher allocation to infrastructure in the Eleventh Five-Year Plan augurs well for the sector.
Stocks to buy: ICICI Bank, Jyoti Structures and Anant Raj Industries.
ICICI Bank (Rs 825): Its decisive strategy of costreduction, low-cost deposit growth, huge branch expansion and high capital adequacy ratio is positioning the bank well for the upturn in GDP growth. Consequently, the quality of earnings and growth rates are expected to show marked improvement from 2010-11 onwards.
Jyoti Structures (Rs 144): This is one of the top three players in the transmission EPC space. It would be a key beneficiary of the potential $14-15 billion opportunity for the industry during the Eleventh Five-Year Plan alone. Besides, a large domestic presence helps insulate margins from raw material price fluctuations and volatile currency movements. It is expected to report robust earnings in the next two years.Markets are likely to be extremely dynamic with hardly any one sector performing consistently: Ashok Jainani, Vice-President, Research & Market Strategy, Khandwala Securities.
Themes to track: There could be sectoral re-adjustments throughout the year with information technology, telecom, oil and gas, cement and metal stocks outperforming. Telecom could enter a new phase with 3G and number portability; the trend of falling average revenue per user could be arrested and increased data usage could help improve revenues.
Stocks to buy: For the year and longer, buy on significant corrections when prices are near or below longterm averages, while the markets look for confirmation of growth.
IFCI (Rs 51): At last IFCI seems to be getting on the road to re-discovery. We expect the company to tap new long-term funds to get back to the lending business and increase its loan book which is currently slimmer than many smaller banks. We believe IFCI has hidden assets which could unlock and bring back the financial institution on the growth path leading to the unlocking of stakeholders' value.
Reliance Communications (Rs 174): The stock has corrected sharply due to the tariff war it launched on the eve of the mobile number portability to trample competition. Though cut-throat competitive tariff is likely to hit EBIDTA margins in the initial quarters, the market has already de-rated the stock along with other players. We believe most of the fears are already factored in as the market chooses to ignore positive developments once the competition settles down. De-leveraging of the balance sheet through value unlocking and cash generation from moderation of capital expenditure could earn decent returns for investors.