A collection of 12 stocks that HDFC Securities and ICICI Securities are recommending buying this Diwali.
The Indian market has witnessed a steady run so far this year, with the Nifty clocking a fresh milestone of 10,000. Frontline indices gained 20-22 percent between January 2017 and October 9, 2017.
Going forward, a key element on the market’s radar is the auspicious festival of Diwali.
The Diwali period also marks the commencement of a new year for the trader community, and that is commemorated with a Muhurat Trading session by the market.
Muhurat Trading is unique to Indian markets and is based on the word Muhurat, which means auspicious time. Traditionally, BSE was dominated by Gujarati and Marwari brokers and they used to follow Hindu calendar.
As per Hindu calendar, Diwali is an important festival, similar to Christmas for Western world. On the first day of New Year – Vikram Samvat, these brokers used to open new year settlement accounts for their clients by trading during Muhurat Trading session, explains this report.
Between Diwali of last year and this year till October 10, the Sensex has gained 14 percent, while the Nifty has returned around 16 percent.
So, what’s in store for the investor this year? Which stocks could one bet on? Moneycontrol brings you 10 stocks, chosen as Diwali picks by HDFC Securities and ICICI Securities.
The brokerage house believes that worst faced by the auto sector first due to the BS-IV emission norms and then due to the destocking on account of advent of GST, is already past.
“With the recovering demand in the auto sector, rising incomes in the rural sector, better branding programs, new product developments/introductions through JVs, good regulatory environment for the 3Ws, Bajaj Auto is set to benefit,” the brokerage house said in a report.
This, it said, will further improve the return ratios and may help it achieve better valuations.
HDFC Sec highlighted that acquisition of Reliance Cement has provided an entry to the firm in the central region, apart from the North and East.
“The proposed greenfield expansion would take care of the West, making it a formidable player in the industry. Various cost reduction measures like use of pet coke, alternative fuels, higher use of fly ash and slag are likely to result in higher growth in EBITDA/tonne,” the broking firm said in its report.
Legal tangles related to land acquisition have been delaying the proposed greenfield expansion of Divi’s Lab, the broking firm said, adding that a continued delay in supplies would remain a cause for concern for clients.
“With the import alert (IA) on its crucial Unit-II facility coming into force at the end of Mar-17, 1QFY18 results were not encouraging at all. The management has guided for flattish revenue growth for the rest of the year, and profitability that will be lower than FY17 owing to remediation costs,” the brokerage house said in a report.
The brokerage house said that the stock was trading at 3.7x P/EV for FY17, which is lower than the recent listing of SBI Life insurance at 4.1x P/EV for FY17.
HDFC Sec said that the company is seeing good traction in the partnership driven digital business as well as direct deal wins. It also said that Persistent has been securing multi-year multi-million dollar deals.
ICICI Securities said that the stock has commanded premium valuations over the years due to its consistent track record in earnings. It expects PAT CAGR of 11.9 percent in FY17-19E and loan CAGR of 16.2%.
“Based on recent life insurance IPOs at 3.8-4.2x tailing EV, we upgrade HDFC Standard life valuation to 3.6x forward EV (4.2x trailing). IPOs expected in the asset management industry warrant revised valuations for HDFC AMC business to 8% of AUM,” the brokerage said in a report.
The broking firm expects revenues to grow at a CAGR of 16.9% over FY17-19E
On the valuation front, it said that the stock is currently trading at an attractive valuation of US$61/t (based on FY19E capacity of 5.8 MT), which is 25-30% lower compared to other midcap players
HDFC Securities said that the company’s strong parentage will ensure that the company offers best products and solutions to the customers giving it a competitive edge in the markets. It also added that the company’s strategy to strengthen its position in focus industries is expected to lead to steady volume and profit growth.
The brokerage house said that it recommends this stock based on reasonable valuations and improving growth outlook from automotives.
It also believes that premium valuations for bearings companies augurs well for companies like NRB.
ICICI Sec said that the company witnessed muted topline growth in FY15-17 due to capacity constraints and adverse impact of demonetisation on the domestic footwear industry in FY17.
“Going forward, however, the company is witnessing healthy demand traction in the footwear segment and has also firmed up its plan to set up a PU plant with likely commissioning in H2FY19, which will lead to sustainable volume led growth in FY18-22E,” the report added.
“Over the last 10 years, its revenue, EBITDA & PAT has registered CAGR of 10%, 9%, 12%, respectively. It has low debt (debt to equity at 0.6x) with decent return ratio (>13%),” the report added.
It also believes that there is a scope of re-rating based on the valuations. “We ascribe PE multiple of 17x to the average EPS of FY19E & FY20E, to arrive at target of Rs 1,020,” the report added.