Ten Stocks to Invest in for an Upside of 10-30%
Supported by foreign inflows, the market continues to make high records as bulls retain control over Dalal Street in January despite the intermittent attempts by bears.
The BSE Sensex on January 11 crossed the crucial 49,000-mark, adding 7,000 points in the last two months when it surpassed January 2020's record high, while the Nifty50 moved closer to 14,500 levels, nearly doubling from its March 24's low point.
"USD depreciation and high liquidity are the key reasons behind FII flow in India. Recent discretionary consumption trends in the domestic market are also encouraging and point towards normalizing consumption trends in India," said - Ashutosh Tiwari, Head of Research at Equirus Securities, and added, "These along with expected pick up in infrastructure and construction are positive signs for economy recovery next year. We expect FII flows to remain healthy as long as we don’t see a big reversal in USD, however, the quantum of flows may taper off."
"Investors will need to focus on the fundamentals of companies and sectors for results and asset allocation will also gain importance," said Poonam Tandon, CIO at IndiaFirst Life Insurance Company.
Below is a collated list of 10 stocks on which brokerages initiated a buy call with a 10-30 percent return:
1. HDFC Life Insurance Company:
"HDFC Life currently trades at around 4.3x FY23E embedded value (EV), which is at a premium compared to its peers. Given the superior business franchise and continued focus on profitability, valuations are expected to remain at a premium," ICICI Direct said.
2. Petronet LNG:
"Regas tariff at Dahej is 10 percent below its nearest competitor. The 5 percent annual tariff hike in Dahej is far ahead of the 3 percent annual CAGR in fixed costs per unit. Ban on industrial use of polluting fuels & reduction of import duty on LNG is supportive. City gas distribution (CGD) and refining together should help drive 6.5 percent CAGR in LNG demand over FY20-24," CNBC-TV18 reported quoting the brokerage.
3. Fortis Healthcare:
"Hospital business is well-positioned to return to profitability with strong industry tail. Hospital capacity expansion of 1,300 beds spread over the next five years with healthy utilization will post revenue growth of 6.5 percent in FY20-23 and EBITDA margin expansion to 16 percent. Diagnostic business is ripe for strong decadal growth as spending on preventive tests increases, organized players gaining market share," said SPA Securities.
"SRL offers a comprehensive range of investigations in pathology and imaging over 3,700 diagnostic tests, and is expected to grow revenue by 8 percent in FY22/23 along with 120 bps margin expansion by FY23," said the brokerage.
4. Dalmia Bharat:
"Led by strong market positioning and competitive cost structure, the company's margins rank in the top quartile of the sector. To further consolidate its position in the eastern region, the company is expanding the East plant's capacity by 75 percent or 8mnt with its All-India capacity increasing by 27 percent to 37.5mnt. This would drive a 13/31 percent CAGR in EBITDA/PAT for FY20-FY23E. We value the stock at Rs 1,480, EV/EBITDA of 9.0x FY23e (25 percent discount to pre-MF episode valuations of 12.0x)," said the brokerage.
5. Varun Beverages:
"We expect strong demand traction over the next few years due to: a) VBL being a monopoly play in PepsiCo India’s business, b) rising penetration on the back of a robust distribution network, c) diversifying product portfolio, d) greater refrigerator penetration in rural/and semi-rural areas per household and higher power availability hours, and e) increasing discretionary spending per capita," said Motilal Oswal which initiated buy rating on Varun Beverages with a target of Rs 1,100 per share.
"Diversification in other businesses has made a little dent to earnings for its agri-machinery business accounted for over 83 percent of allocable EBIT last fiscal, thus lending its fortunes to no small dependence on vagaries of monsoons, agricultural reforms, rural spending et al. Striking 'velocity' in Indian tractor industry over the last few months have little stymied growth prospects for next fiscal; Agri machinery revenues are estimated to rise by some 12 percent next fiscal. Balancing odds, we assign a buy rating on the stock with a target of Rs 1,610 based on 20x FY22e earnings for 9-12 months," said CD Equisearch.
7. RBL Bank:
"RBL Bank is a mid-sized private bank undergoing its second big transformation, this time from bulky corporate banking exposures to focusing on key retail-asset niches. The credit-cards and microfinance (MFI) businesses have been built in the past three to four years and gained scaled through tie-ups, and will drive the bulk of profitability going forward. The consolidation of corporate book growth is providing the bank an opportunity to work on its liability franchise, and delivery on liabilities will be key to further rerating," said CLSA which initiated coverage on RBL Bank with a buy rating and Rs 330 target price.
8. Zee entertainment enterprises:
"We believe ZEE5 is one of the strongest content platforms and can be a major growth and re-rating driver in coming years. We initiate buy with a target of Rs 290. Non-core investments, related party transactions, contingent liabilities, and accelerated inventory amortization are key risks to our call," said the brokerage.
9. Gujarat Gas:
After success in Morbi, pollution focus is likely in more areas, said Nomura, adding the company's overall margin may average at Rs 5.40/SCM in FY21. The brokerage sees a low threat of large third-party volumes in the near term, according to a CNBC-TV18 report.
10. Repco home finance:
"Repco is an attractively valued housing finance company (HFC) with a niche loan book (salaried & professional class borrowers), stable asset quality, strong ratings, and good return ratios. With disbursements gaining pace since September, the company returns to growth in FY2021E itself; collection efficiency at 93 percent in September," the brokerage reasoned.
Disclaimer - The following suggestion is a mere analysis made by brokerages.