What to buy after 1624-point fall; top 10 stocks for long-term investment
We have collated view from experts across brokerage firms on stocks which can be bought on dips for an investment horizon of minimum 1 year.
The overall investors' wealth, measured in terms of total valuation of all listed stocks, plunged by about Rs 7 lakh crore as it crashed below Rs 100-lakh crore mark and stood at Rs 95,34,540 crore in afternoon trade on the BSE. Market cap on 21 August stood at Rs 1,02,32,792.24.
Although sharp losses and gains in equity markets is a regular phenomenon, what stands out this time is the explosive rise of more than 40 per cent in implied volatility (a measure of risk perception and an indicator of fear), say experts.
“The epicentre of this market volatility lies in problems faced by commodity producers and emerging markets. While a sharp decline in commodity prices has created the fault lines, China seems to be at the epicenter of the recent bout of volatility," says Sahil Kapoor, Chief Market Strategist, Edelweiss Financial Services.
"A 61 per cent decline in crude oil in the last 1 year and large cuts in agricultural commodity prices have shattered the fiscal positions of most commodity producers like Brazil, Russia, Argentina and OPEC, leading to a sharp depreciation of these currencies," he added.
Kapoor further added that slowing growth in China prompted the Chinese central bank to weaken Yuan in line with other emerging markets, triggering instability across the globe.
The catalyst for the current fall in equity markets across the globe has been China's devaluation of the Yuan which has made the market much more nervous about deflation and competitive devaluation of currencies by countries across the board.
"India should benefit fundamentally as we are importers of energy and metals, the prices of which are falling, and our economy is a lot less dependent on manufacturing exports (the area where a lot of pain is possible)," says Gautam Sinha Roy, Vice President - Fund Manager, Motilal Oswal AMC.
"We are seeing this as a decent buying opportunity- while India is falling as a collateral effect of the global rout, some of the important macro parameters for the country have become incrementally positive only - e.g. the fall in crude prices is hugely beneficial for us, so is the fall in other raw material prices which India imports. The currency fall is positive for exports, but is otherwise dangerous," he added.
There is over ownership in IT, financial services and consumer goods. But in the current environment, probably IT is among the favourites of investors, but financials could get hit further, say experts.
"The financial services sector could come under pressure because if the recovery -- which was expected in the domestic economy in the second half of the year -- is delayed, then the challenges in the domestic financials will continue," says Krishna Kumar Karwa, MD & CFO, Emkay Global.
"Private sector banks could be vulnerable because that is where the valuations are relatively rich and the expectations are that they will continue to do well. If the economy struggles for any reason, then may be some of the NPA issues will crop up in some of these private banks," he added.
We have collated views and recommendations from various experts across brokerage firms on stocks which can be bought on dips for an investment horizon of minimum 1 year:
Brokerage Firm: Prabhudas Lilladher
Tech Mahindra Ltd: Buy for a target price of Rs 640
Tech Mahindra's Q1FY16 revenue was above consensus expectations, while margin was largely in-line. The quarter was impacted by challenges in mobility business and top clients, whereas margin was impacted by visa cost, mobility and M&A integration. The brokerage firm expects steady improvement in revenue momentum with margin uptick through FY16.
According to the management, slow decision making in communication vertical due to M&A activity is not over yet. However, they expect M&A-related work towards the end of FY16 and execution in FY17. They are confident of regaining the lost market share based on investments made.
Prabhudas Lilladher expects low-teen revenue growth in FY16 with margin at CC throughout FY16. Retain 'BUY'.
IndusInd Bank Ltd: Target price set at Rs 1050
IndusInd Bank delivered 23 per cent YoY growth in core revenues led by uniform growth in core fees and NII. Margins held stable at 3.68 per cent; however, recent capital-raising, revival in consumer business loan growth and moderation in funding cost will lend buoyancy to NIMs, going ahead.
CASA mix improved further led by strong traction in savings deposits. The bank aspires to achieve 40 per cent CASA mix and 4 per cent NIM over the next two years as it increases its branch network to 1,200 (from 811 currently), realigns its savings rate and looks forward to a recovery in CV cycle, signs of which are already visible.
Post recent capital infusion, the bank is well capitalized and has Tier-I of 16 per cent, while the regulatory relief on retail loans has further helped IIB in controlling RWA growth. Prabhudas Lilladher maintains "Accumulate" with a revised target price of Rs1,050.
Sadbhav Engineering Ltd: Target price set at Rs 380
Sadbhav Engineering Ltd (SEL) is targeting to win Rs25-30bn worth BOT projects over the next 6-12 months apart from EPC orders in Roads. Order book at the end of FY15 stood at Rs82bn, down 10 per cent YoY.
NHAI has already awarded ~ 1500-2000KMs in first 3 months and tenders worth Rs250-300bn should be up for bidding over next few months. The stock is trading at Core PE of 11.3x FY17E earnings.
Prabhudas Lilladher believes that healthy order book (Rs82bn, 2.8x FY15 sales) provides strong visibility and an improving outlook in its key segments of roads/mining/Irrigation augur well for future growth.
Limited commitment on the current BOT portfolio and well-funded balance sheet makes it well-placed to benefit from improved ordering in the road sector.
Persistent System Ltd: Target price set at Rs 910
Persistent Systems (PSYS') reported Q1FY16 results largely in-line with consensus expectation. The brokerage firm sees bottoming out of expectation post Q1FY16 result as revenue momentum is likely to pick-up from Q2FY16 and margin likely to witness improvement from Q3FY16.
Top client grew by 7.8 per cent QoQ and expected to deliver healthy growth in FY16. Prabhudas Lilladher expects Persistent to deliver towards the upper-end of NASSCOM guidance for FY16. Retain our 'BUY' rating.
Rallis India Ltd: Target price set at Rs 270
Rallis India has de-risked its domestic pesticide portfolio over the last three years by diversifying in high growth agro-segments like Seeds (33 per cent revenue CAGR over FY15-FY17E), plant growth nutrient (23.5 per cent CAGR) & exports (12.2 per cent CAGR FY15-FY17E).
Rallis is expected to deliver 21 per cent earnings CAGR over FY15-FY17E, stable margins at 16 per cent and high RoEs in the range of 23 per cent. With the capex cycle behind, Rallis is expected to generate Rs4.1bn free cash over FY15-FY17E.
The stock is trading at a P/E of 19.2x FY17E earnings and an EV/EBITDA of 11.2x FY17E. Strong parentage, new product launches, diversification across Agriculture value chain and a lean balance sheet makes Rallis a compelling "BUY" for the long term.
Analyst: Vikas Sethi, Managing Director, Sethi Finmart
Suven Lifesciences Ltd: Target price set at Rs 400
This is a midcap pharma company with pretty strong fundamentals and niche business model. This company is mainly into CRAMS business, and have several molecules in the pipeline. One of their molecules by the name of Suven 502 it is in phase II clinical stage trials and then it is likely to see successful monetisation in the next say 12 to 18 months which would be tremendously positive for the stock.
To add to that the company has promising new chemical entity pipeline consisting of around 14 molecules. I see tremendous potential in the company in the coming years and as far as the financials are concerned they were pretty healthy balance sheet, pretty negligible debt, very high ROE, very high return on capital employed, and with the kind of growth expected I like the stock.
To add to that the stock has corrected from its recent highs after say just okay set of numbers for this quarter so the current levels of around 240, the stock presents a pretty good opportunity for long term investors to acquire as I see a target of Rs 400 for the stock in a year's time.
Hindustan Sanitaryware (HSIL): Target price set at Rs 450
HSIL, this company is a market leader in the Indian sanitaryware business and commands a sizable 40 per cent market share. The company has pretty strong brands, very strong distribution network. The results which were declared by the company for their June quarter also pretty okay.
The net profits had gone up around 16 per cent from 15 odd crore to 17.35 crore and the stock has corrected significantly and then with the kind of focus which the government has on housing and their Swachh Bharat Abhiyan both these would be hugely positive for this stock.
With the current levels the stock is presenting a very good opportunity for long term investors and at the current levels of around 280 one should be looking at the stock from a long term point of view and my target on the stock would be Rs 450 in a year's time.
Brokerage Firm: Motilal Oswal
Dynamatic Technologies Ltd: Target price set at Rs 3400
Dynamatic Technologies reported revenues of INR3.7b compared with INR4.2b in 1QFY15, marking a -12.3 per cent YoY growth. The management highlighted that while auto recovery in India remains sluggish, muted demand, change in sales mix and EUR depreciation affected German sales during 1Q.
The management expects growth to recover from 4QFY16, led by higher sales of steel castings production from its German facility. For FY16/FY17, Motilal Oswal expects a moderate 1 per cent/11 per cent revenue growth and 3 per cent/6 per cent margins for the automotive division.
They have cut their FY16/FY17 EBITDA estimates by 22 per cent/9 per cent, which (due to high financial leverage) translates into earnings cut of 54 per cent/15 per cent on the back of sharper-than-expected weakness in auto and hydraulics businesses. Maintain Buy with a revised TP of INR3,400.
SITI Cable Network: Target price set at Rs 48
Motilal Oswal expects the digital subscriber base to increase from 5.4m in FY15 to 11m in FY18. Increase in net subscription income in the post-digitization scenario should drive 99 per cent recurring EBITDA CAGR, with EBITDA (ex-activation) expected to improve from INR0.8b in FY15 to INR6.1b in FY18.
SITI Cable trades at EV/ EBITDA (ex-activation/ minorities) of 29.8x/14.5x/5.9x FY16E/FY17E/FY18E. Our EBITDA estimates are largely unchanged. They maintain Buy with a DCF-based price target of INR48/share (unchanged).
Power Finance Ltd: Target price set at Rs 330
Despite the underlying stress in the power segment, Power Finance has managed to generate steady earnings CAGR of over 20 per cent over FY09-15. While RBI's move to grant regulatory forbearance to banks for infrastructure lending can exert pressure on profitability over long term, near-term growth and profitability should remain healthy.
Moreover, with a stable government, infrastructure bottlenecks are likely to be reduced, which will be positive for growth and asset quality. Power Finance trades at 0.7x FY17E BV (below LPA of 1.3x). Acceleration in reforms could be a catalyst for re-rating. Buy
(Views and recommendations expressed in this section are the analysts’ own and do not represent those of EconomicTimes.com. Please consult your financial advisor before taking any position in the stock/s mentioned.)