NEW DELHI: Domestic equity benchmark Sensex again broke below its crucial support level of 24,000 on Friday, a day after the big selloff in equities globally, as crude oil continued its downward spiral, falling below the $27 a barrel mark.
The benchmark indices are down over 20 per cent from their respective all-time highs hit way back in March 2015.
While the ongoing selloff is largely led by global factors, experts say it is a great opportunity for investors who are looking to invest[1] with an investment horizon of 2-3 years.
"This is not a repeat of the 2008 crisis. Markets are in correction mode globally, and this has been the worst start to a calendar year in about 90 years. As for Indian equi ties, in particular, there is room for further correction on the downside from a technical perspective, but the fundamentals of the domestic economy[2] are actually quite positive," Hans Goetti, BIL, said in an interview with ET Now.
"Oil prices are low. There is scope for interest rates[3] to go down further. So it is not going to be the end of the world for the Indian market. Globally we have a correction in risky assets and , of course, India will not be spared," he said.
Experts said it will be a tough year for traders, but investors can make use this opportunity and invest in quality stocks, especially largecap stocks, with a 3-5 years perspective. A number of midcap stocks[4] are still trading at lofty valuations and risk-averse investors should stay away from them.
"We are okay with largecaps for value investing. We really like the regulated utility segment, where because of regulations utilities are expected to earn 14-15 per cent as soon as they create a fixed asset," Nimesh Shah, MD & CEO, ICICI Prudential AMC, said in an interview with ET Now.
"Investors do understand that equity investment should be at least for three to five years. Ideally, I would want a five-year-plus paradigm. I understand that the market had a bad year. But I am very confident that there are a lot of companies, where capacity utilisations will increase over the next two years," he said.
Shah said with rising capacity utilisation, those companies will make more money and their stock prices will grow.
Here is a list of 10 stocks that various brokerages have recommended to their clients with an investment horizon of 12 months.
Infosys: Target price Rs 1,350
Infosys' Q3 revenue growth in constant currency terms rose 1.1 per cent QoQ, which was strong given the muted expectations on the back of furloughs, a one-time benefit of 1 percentage point in the previous quarter, and con sidering TCS' 0.5 per cent QoQ growth in constant currency terms.
Under the new management, Infosys has addressed concerns over growth, margins and attrition. It contrasts against the remainder of the industry, which continues to grapple with the prospects of decelerating growth.
While pricing is a secular concern, growth leaders will be best placed to offset the impact. "We remain confident of Infy's outlook for the industry-leading growth in FY17 and believe it is investing in all the right areas to regain its bellwether status. Our price target of Rs 1,350 discounts two-year forward earnings by 18 times. We have a buy rating on the stock," brokerage Motilal Oswal said in a report.
Dynamatic Technologies: Target price Rs 2,770
The company has got clearance for commercial deliveries in the case of Boeing (client) and the same shall commence from Q4 in FY16; while commercial clearance for Airbus[5] and Bell is expected in March 2016. Dynamatic will supply pamp/pylon parts for Chinook CH-47 to Boeing.
On the back of reduced revenue guidance in the auto and aerospace divisions and impact of high-interest outgo in view of renewed plans, the brokerage has cut its earnings estimates for the company 23 per cent/34 per cent/12 per cent for FY16/FY17/FY18.
With massive opportunity in aerospace ($60 billion), strong growth visibility (book-to-bill of 23 times) and improvement in return ratios (RoE to improve from 8.5 per cent to 22.2 per cent over FY15-18), the brokerage values the stock at 22 times FY18E EPS (roll over to FY18) and arrive at a revised target price of Rs 2,770 (earlier Rs 3,000). Brokerage Motilal Oswal maintains a buy rating on the stock.
State Bank of India: Target price Rs 400
There is a lot of pessimism in the banking space, especially in the PSU basket. "I feel SBI, the leader among in the PSU basket, is something which one can look at," said Rahul Shah, Associate Vice President, Group Leader-Equity, Advisory Group, Motilal Oswal. It offers a huge opportunity from the current levels and lot of pessimism is already baked in the numbers.
The stock has already corrected by around 30 per cent in last 15 days. At current level, it is trading at 0.8 times FY17 forward earnings and the RoE is expected to improve from 11 per cent at present to 15 per cent by FY18.
"SBI is poised for growth and create a lot of noise in the PSU basket. This is the time to get it into the stock," Shah said. He advises investors to buy the stock with a target of Rs 400, which he said is at 1.5 times adjusted forward book.
Reliance Industries: Target price Rs 1,220
Reliance Industries' (RIL's) Ebit was in line with estimates and PAT was 3% ahead on the higher-than-expected gain on sale of investments. The company pushed out gassifier commissioning to 2HCY16, implying less than 6 months of benefits in FY17.
"As a result, we cut our FY17 EPS estimate by 10% and now build in EPS decline YoY owing to start-up losses at Jio. RIL did not specify a firm rollout timeline for Jio (2QFY17 per our telecom analyst)," IIFL Institutional Equities said in a note.
Earnings growth is now back-ended to FY18 when core capex stabilises, driving up RoE 250bps to 12.6 per cent. The brokerage maintains a buy rating on the stock with a target price of Rs 1,220.
HCL Technologies: Target price Rs 1,052
HCL Tech's Q2 numbers were a positive surprise. Revenue growth of 2.1 per cent (cc, QoQ) was in line with most analyst estimates. A fall in Ebitda margins of 40bps (QoQ) was much better than estimates of a 140bps fall.
Th e US market led the strong growth in Q2 of FY16. IIFL believes a rampup in large integrated deals (infra and BPO witnessed strong growth) in retail/telecom/energy/utilities verticals was the key growth drivers.
Cash flow, although weaker than 60-70% FCF/Ebitda levels of FY13-FY15, was healthy at over 50%. Dividend payout increased to 50% in 2QFY16. "We believe the high 40%+ dividend payout will sustain," the brokerage said.
HCL Tech remains one of the top picks of the brokerage in the largecap IT space. It expects revenue growth to be among the best in largecap IT space. Valuations are cheap at 13.1 times FY17 PER. Dividend yield is also healthy at 3 per cent.
Zee Entertainment: Target price Rs 490
CLSA has given a buy rating on ZEE Entertainment with a target price of Rs 490 after the December quarter results. Net Profit declared by the company was below estimates, but high ad growth and subscriptions are likely to accelerate, the brokerage said.
It has downgraded FY17-18 profit estimates for Zee by 4-5 per cent on higher tax rates. The digitisation phase-3 is rolling out and will be a strong earnings driver for ZEE Entertainment said the global brokerage firm.
MindTree: Target price Rs 1,608
MindTree results were ahead of Street estimates. US dollar revenue growth of 3.4 per cent QoQ was way above its largecap peers such as Wipro, Infosys and TCS. This was the third consecutive quarter when MindTree delivered industry-leading growth, Karvy said in a note.
The acquisitions of Bluefin Solutions (BSL) and Relational Solutions (RSI) provided additional $11.3 million to the revenue. Organic price realisation growth was healthy at 4.6 per cent QoQ but organic volume declined 1.7 per cent QoQ.
Strong Q4 guidance and acquisition of Magnet 360 bode well for industry-leading growth in FY16. Currently, MindTree is trading at 17.4 times FY17E and 14.6 times FY18E earnings. "We upgrad e our rating from 'sell' to 'hold' and roll over to FY18E with our revised target price at Rs 1,608 based on 16 times FY18E earnings," Karvy said in a note.
HUL: Target price Rs 825
Kotak Securities[6] maintains a 'reduce' rating on HUL post Q3 results but raised its target price to Rs 825 from Rs 790 earlier. December quarter results were a tad weak, but a lot to like on strategy and execution said the bank. Using raw material benefits in strengthening competitive positioning and premiumisation will benefit HUL. They see HUL as a better stock to own than most other richly valued names in the sector.
Jagran Prakashan: Target price Rs 189
Angel Broking[7] expects Jagran Prakashan to register net sales growth at a CAGR of 15 per cent over FY2015-17E, on the back of (a) strong growth in advertising revenue due to improvement in GDP growth, (b) improvement in circulation revenue owing to a combination of an increase in cover price and volume growth.
Considering Dainik Jagran's strong presence in the rapidly growing Hindi markets, we expect JPL to benefit from an eventual recovery in the Indian economy. Hence, the brokerage firm maintains an Accumulate rating on the stock with a target price of stock with a target price of Rs 189
Siyaram Silk Mills: Target price Rs 1354
Siyaram Silk Mills (SSML) has strong brands, w hich cater to premium as well as popular mass segments of the market. Further, in FY2014, SSML entered the ladies' salwar kameez and ethnic wear segment. Going forward, we believe that the company would be able to leverage[8] its brand equity and continue to post strong performance.
Going forward, Angel Broking expects SSML to report a net sales CAGR of 10 per cent to Rs 1,815 crore and adjusted net profit growth of 11 per cent CAGR at Rs 98 crore over FY2015-17E on the back of market leadership in blended fabrics, strong brand building, and wide distribution channel.
(Views and recommendations given in this section are the analysts' own and do not represent those of EconomicTimes.com. Please c onsult your financial adviser before taking any position in the stock/s mentioned.)
References
- ^ invest (economictimes.indiatimes.com)
- ^ economy (economictimes.indiatimes.com)
- ^ interest rates (economictimes.indiatimes.com)
- ^ Airbus (economictimes.indiatimes.com)
- ^ Kotak Securities (economictimes.indiatimes.com)
- ^ Angel Broking (economictimes.indiatimes.com)
- ^ leverage (economictimes.indiatimes.com)
