The year 2018 started on a positive note with benchmark indices
hitting a fresh record high but things changed soon after the Budget 2018 was
announced. Benchmark indices have plunged over 7 percent each from their
respective record highs.
From a global perspective, rising US bond yields led to
shifting of capital from equities to bonds which led to some bit of selling by
foreign institutional investors across emerging markets.
Rising inflation back home has put the Reserve Bank of India (RBI) in a tight spot with respect to cutting
interest rates. Most economists feel that the central bank is more likely to
raise interest rates in the next 6 months.
“In a rising interest rate scenario, high beta like NBFCs
and Banks can underperform. Also, the steep interest outgo could weigh on
highly levered companies which also increases the cost of equities,” AK
Prabhakar, HoR, IDBI Capital told us.
“We like companies that are cash-rich. Adding to that, we
filter companies that have the sustainable business model and require little
cash for future. Needless to guess, they turn good dividend payers. To be more
precise, we like BEL, NBCC, REC, PFC, Abbott India, TCS, ZEE Entertainment and
Power Grid,” he said.
Space which got beaten down the most is the small and the
midcap space which saw double-digit cuts if up to 50 percent in a matter of
days. One big reason for the churn is investors are moving their exposure from
mid & smallcaps to largecaps.
“The basic criteria to select stocks usually when we are
looking at market rotation from small & midcaps to largecaps is to evaluate
time-proven fundamental ratios like PE Multiples, relative valuations and
stocks which are available to at discount as compared to their sectoral
valuations,” Mustafa Nadeem, CEO, Epic Research told us.
“Any stock that is available at discount in terms of PE
multiple and EPS as compared to their sector or incases a peer comparison can
also be done to find out the same. There are other tools like relative analysis
which can be done by comparing the index to a sector and then to a Stock making
it a top-down approach,” he said.
There are many technical indicators as well that help in
terms of finding the outperforming stocks when there is a churn going on in
sectors. For example, performance comparison and relative analysis are one of
the best tools one can look forward to, suggest experts.
We spoke to different experts and here is a list of top ten
stocks which investors can look at buying on dips in volatile markets:
DHFL:
Backed by healthy capital adequacy and increasing demand for
home loans DHFL’s loan book is expected to report 23 percent loan growth over
the next two- three years.
DHFL sold 50 percent stake held by it in DFHFL Pramerica
Life Insurance Co Ltd which added Rs1,969 crore to its net worth and increases
its CAR by 400bps, to 19.3% which should fuel growth for next 2-3 years.
Strong net interest margin (NIM) on the back of lower cost
of funds and lower credit cost will ensure healthy return ratios for the
company. Despite strong growth, the company has maintained stable asset quality
and we expect the trend to continue.
We expect the company’s loan growth to remain 23 percent
over the next two years and earnings growth is likely to be more than 28
percent. The stock currently trades at 1.9x FY2019E ABV. We maintain Buy on the
stock with a target price of Rs712.
Siyaram Silk Mills:
Siyaram Silk Mills (SSML) has strong brands which cater to
premium as well as popular mass segments of the market. Further, SSML entered
the ladies' salwar kameez and ethnic wear segment.
Going forward, we believe that the company would be able to
leverage its brand equity and continue to post strong performance. The company
has a nationwide network of about 1,600 dealers and business partners.
It has a retail network of 160 stores and plans to add
another 300-350 stores going forward. Further, the company's brands are sold
across 300,000 multi brand outlets in the country.
Going forward, we expect SSML to report a net sales CAGR of
12 percent to Rs1,981 crore and adj.net profit CAGR of 16 percent to Rs126cr
over FY2017-19E on back of market leadership in blended fabrics, strong brand
building, wide distribution channel, strong presence in tier II and tier III
cities and emphasis on latest designs and affordable pricing points.
At the current market price, SSML trades at an inexpensive
valuation. We have a buy recommendation on the stock and target price of Rs813.
Maruti Suzuki Ltd:
The Automobile sector is expected to benefit from the GST
implementation. The sector has seen a pickup in the volumes in FY17 as there
were several positive factors like a normal monsoon and lower interest rates.
Maruti Suzuki continues to hold 52 percent market share in
the passenger vehicles. The launch of exciting models has helped the company to
ride on the premiumization wave that is happening in the country.
In the last two years, the company has seen improvement in
the business mix with the pie of the utility vehicles growing from ~4% to
current 15%. The 2-3 months of the waiting period of new models, the launch of
Swift Hatchback in January-2018 and headroom for more capacity utilization at
Gujarat plant is the near term earning triggers.
Due to the favourable business mix, the company has also
been seeing improvement in the margins. The company has already moved from
~11-12% EBITDA margin range in FY14 to current ~17% margin range in 3QFY18.
Together with higher operating leverage at Gujarat plant,
increasing Nexa outlets, and improving business mix, we believe that company
has further room to improve its margins. We have a Buy rating on the stock.
TV Today Network:
TV Today Network (TTNL) enjoys a strong viewership ranking
in the Hindi and English news channel categories. The company’s Hindi news
channel – Aaj Tak has maintained its market leadership position occupying the
No.1 rank for several consecutive years in terms of viewership.
Its English news channel – India Today too has been
continuously gaining viewership; it has now captured the No. 2 ranking from No.
4 earlier. Its other channels like Dilli Aaj Tak and Tez are also popular among
viewers.
TTNL is a play of higher operating leverage that would be
visible as advertisement revenues gain traction. Going ahead, we expect EBITDA
margins would improve.
Going forward, we expect TTNL to report net revenue CAGR of
17 percent over FY2017-19E to Rs779 crore and net profit CAGR of 22 percent
over the same period to a Rs139 crore. We recommend BUY with target price of
Rs560.
KEI Industries Ltd:
KEI’s current order book (OB) stands at Rs2,780 crore
(segmental break-up: Rs1,990cr in EPC, Rs560 crore in Cable and Rs230 crore in
EHV). Its order book grew by 28 percent in the last 3 years due to strong order
inflows from State Electricity Boards, Power grid, etc.
KEI’s consistent effort to increase its retail business from
30-32% of revenue in FY17 to 40-45% of revenue in the next 2-3 years on the
back of strengthening distribution network (currently 926 which is expect to
increase Rs1,500 by FY19) and higher ad spend (increased from Rs2 crore in FY13
to Rs7.5 crore in FY17 and expected to spend).
KEI’s export (FY17 – 8-10% of revenue) is expected to reach
a level of 14- 15 percent in the next two years with higher order execution
from current OB and participation in various international tenders.
We expect a strong 26 percent growth CAGR over FY2017-19 in
exports. KEI is likely to report net revenue CAGR of 13 percent to Rs3,392
crore and net profit CAGR of 19 percent to Rs140 crore over FY2017-19E. Hence
we have an accumulate rating on the stock.
ITC:
This is one of the most favored stocks when we talk about
safe havens or on the flipside crash proof. For a simple reason, it is
defensive stock which continues to pay the dividend and has a very strong
performance record.
For the very same reason, it is amongst top holding of
mutual funds and having dividends on regular intervals is a cherry on the cake.
The stock tends to perform well in longer term thus smoothening out the
short-term volatility.
Hindustan Unilever Ltd:
An FMCG giant with a worldwide presence and strong track
record in terms of appreciation of price and business. Despite GST or DeMo, it
has outperformed in the same period beating the benchmark as well as other
heavyweights.
It has given regular dividends along with its defensive
nature make it a safe haven for long-term investors who seek to park money for
capital appreciation.
HDFC Bank:
HDFC Bank is one of the best private sector banks with its
giant market presence and dominant hold in the sector. It has been a consistent
outperformer for the past few years with robust results every year which makes
it a top pick.
It gives an exposure to the overall banking sector which is
complementary to an economy which is unfolding to a growth of GDP above 7
percent consistently.
It is also amongst the top holdings of Mutual funds and has
a very high weight. It maintains a far better NIMs compared to its peer group
while has very low NPA makes it attractive for a long-term growth story.
SBI:
State Bank of India (SBI) is a giant in the banking sector
which has spent its last few years in M&A's of more than 5 PSU banks. At
the same time, it has
benefited from various govt schemes which improved its
customer base across India.
It is on its way to becoming a megabank while the recent
recapitalization has also improved the future prospects of PSU banks.
SBI stands top of the list that may be highly benefited and
perform very well in the coming years. The stock is likely to perform as the
economy picks up the pace.
Ashok Leyland Ltd:
The stock is unfolding the growth story in terms of business
and same is being replicated in terms of price behavior. Any correction in
Ashok Leyland since 2014 has been seen as an opportunity for long-term
investors to buy.
Ashok Leyland is a dominant player in HCV and LCV and
expects a growth of over 15 percent in FY 18-19 while demand picks up in global
markets along with domestic is set to improve the overall top line and bottom
line of the company.
With the new line of products, it may continue to improve
the business line and see a jump in volumes as well.
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