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Stock Analysis, IPO, Mutual Funds, Bonds & More

Which Sensex stocks should you bet on?

The 30 Sensex stocks are market movers & their performance affects your portfolio. Go through our ratings to find if you should buy, sell or hold.

Jul 15, 2013, 10.17 AM IST
The 30 Sensex stocks are market movers and held most widely. Their performance affects your portfolio whether you invest in them directly, through mutual funds, or Ulips. Go through our ratings to find if you should buy, sell or hold.
The 30 Sensex stocks are market movers and held most widely. Their performance affects your portfolio whether you invest in them directly, through mutual funds, or Ulips. Go through our ratings to find if you should buy, sell or hold.
The Indian stock market's benchmark index, the Sensex, has yielded only moderate returns over the one-year, threeyear and five-year horizons. However, not all Sensex stocks have turned in a lacklustre performance over these periods. Defensive stocks in the consumer goods and pharma sectors have prospered. So, even in these times, when the index remains range-bound, there is a strong rationale for tracking individual stocks within the index.

Given their large size, stability, high liquidity and institutional ownership, owning these stocks will lend greater resilience to your portfolio if the market enters a rough patch. As for the outlook for the Sensex over the next one year, the US Fed's decision to taper quantitative easing (QE) from the end of this year has already led to an outflow from the emerging markets.

If it proceeds on schedule, a market like India, with its high current account deficit (and high dependence on portfolio flows to fund the deficit) and a depreciating rupee, will definitely be affected. However, whether the Fed moves on tapering and the quantum of reduction will depend on the pace of economic recovery in the US.

On the domestic front, several state elections are scheduled this year, culminating in the May 2014 general election. In such a year, there is always the danger that reformist measures get relegated to the backburner and populist measures take precedence. Any step that burns a big hole in the fisc will affect market sentiments.

On the positive side, India's GDP growth appears to have bottomed out. The inflation scenario has turned more benign. Corporate earnings are expected to begin improving in a quarter or two. With the benchmark index trading below the long-term average, valuations definitely favour betting on equities.

Among sectors, export-oriented ones like IT and pharma will benefit from the rupee's depreciation. However, both face trouble. The US government's visa rules are not encouraging for Indian IT. Pharma companies, especially those with large domestic businesses, will be affected by the government's drug price control initiatives. The FMCG companies' margins may come under pressure due to the higher cost of imported raw material. However, increased government spending, especially in rural areas, may boost demand for their goods.

With the economy still in the trough, public-sector banks' delinquency pressures will continue. They will also have to withstand pressure from the finance minister to cut lending rates. The infrastructure capital goods segment remains in the doldrums as investment activity has not revived. The government's decision to raise the price of natural gas from 2013 is a positive for the oil and gas sector. With this broad picture in mind, let us consider the prospects of individual stocks within the Sensex.


1) ITC

Recommendation: BUY

CMP: Rs 349.80

PE: 37.25

PB: 11.99

Dividend Yield: 1.50%

Sensex Weight: 16.81%

While ITC'S cigarette division continues to clock healthy growth, its improving profitability in the noncigarette businesses is driving earnings. Despite a hike in excise duty on cigarettes, it has witnessed volume growth. ITC's high pricing power allows it to pass on the cost of duty hikes to its customers. Meanwhile, its paper and hotel businesses are expected to show a turnaround after the current lows. Its strong pricing power, high earnings visibility and improving return ratios are likely to sustain high valuations.

2) Reliance Industries

Recommendation: BUY

CMP: Rs 889.60

PE: 13.68

PB: 1.59

Dividend Yield: 1.01%

Sensex Weight: 8.97%

Though there is a risk of timing (the new government after the general election may not allow it), Reliance Industries is going to be the biggest beneficiary of the recent natural gas price reform. The Indian rupee's depreciation and improving refining margins are going to be the other drivers of its earnings.

Analysts have already started upgrading their earnings estimates for financial year 2014-15 and the upgrades are in the range of 10-15%. The periods of flat earnings growth and lack of other triggers are probably behind the firm.


Recommendation: HOLD

CMP: Rs 849.85

PE: 19.83

PB: 4.12

Dividend Yield: 1.47%

Sensex Weight: 8.03%

HDFC continues to be the undisputed leader among housing finance companies. The other factors that attract long-term investors to this counter include its operational excellence demonstrated over several decades, sustainable revenue and net profit growth, and high asset quality.

Despite its big size, HDFC's asset base is expected to grow by more than 20% in the coming years as well. Though spreads within the sector may get squeezed in the medium term due to the problems faced by the housing sector, HDFC is well-positioned to defend its margins due to its wider reach and size. Investors also need to consider the embedded value of its 23% stake in HDFC Bank. However, there is not much upside in the medium term in this counter as its valuation is high.

4) Infosys

Recommendation: HOLD

CMP: Rs 2,802.75

PE: 17.08

PB: 4.24

Dividend Yield: 1.50%

Sensex Weight: 7.01%

After his sensational return to the company he cofounded, N R Narayana Murthy has displayed typical zeal in setting the house in order. To improve employee morale, Infosys has announced salary increments. A return to the company's earlier successful PSPD model (predictability, sustainability, profitability and derisking) is expected as the company strives to improve operational performance. While the problem of crisis of leadership may have been solved, it will be some time before the management changes are reflected in better numbers.

5) HDFC Bank

Recommendation: HOLD

CMP: Rs 694.40

PE: 24.65

PB: 4.53

Dividend Yield: 0.79%

Sensex Weight: 6.09%

The March quarter marked the 54th consecutive quarter of over 30% year-on-year growth in net profit for HDFC Bank. Yet, its stock price has been languishing in 2013, perhaps because of its high valuation and the prolonged economic slowdown. This, despite the fact that the bank remains the best in class in terms of core parameters like earnings growth, asset quality, high NIM, high CASA and high return ratios. However, analysts are of the view that most of the positives are already factored into the stock's price, which leaves little room for an upside.

6) Larsen & Toubro

Recommendation: BUY

CMP: Rs 994.10

PE: 18.71

PB: 2.72

Dividend Yield: 1.86%

Sensex Weight: 5.43%

While it is reasonable for the market to punish weak counters from the infra sector, a strong player like L&T has also taken a beating. Many infrastructure players face a cash crunch. This is likely to help strong players like L&T expand at the cost of weaker competitors. Lower commodity prices will also help L&T improve its margins.

The company is expected to remain stable at current levels and generate positive returns for investors once the revival in capex takes place. Since the stock is going ex-bonus on 13 July, use the price fall triggered by this event to buy it.

7) ICICI Bank

Recommendation: BUY

CMP: Rs 1,061.95

PE: 12.76

PB: 1.78

Dividend Yield: 1.88%

Sensex Weight: 5.29%

For the past few quarters, ICICI Bank has been churning out decent numbers despite a slowdown in the economy. It has shown improvement in operating performance and a pick-up in retail business growth. In the future, net interest margin is expected to improve as the bank deploys excess liquidity more aggressively.

The company's RoE has improved by almost 300 bps over financial years 2011-13 and is expected to expand due to healthy performance by subsidiaries, mainly general insurance. The stock appears attractively priced at current levels and should give a reasonable upside.


8) TCS

Recommendation: HOLD

CMP: Rs 1,606.10

PE: 22.59

PB: 8.16

Dividend Yield: 1.37%

Sensex Weight: 4.99%

Despite the likely impact of the anticipated US Immigration Bill, the Indian IT's strongest player is expected to continue to do well in the future as well. Since the bill will have a significant impact if passed in the current form, TCS has already started concentrating on newer opportunities (under-penetrated geographies and new technologies).

Being the biggest Indian IT player, TCS is expected to benefit from the ongoing US economic revival. It is also expected to benefit in a big way from the rupee's depreciation. In fact, the positive impact of this development may offset the impact of this year's wage hikes. With TCS being the market's darling, its valuation is a little stretched at current levels.


Recommendation: HOLD

CMP: Rs 296.30

PE: 12.11

PB: 1.68

Dividend Yield: 3.21%

Sensex Weight: 4.76%

The recent reforms like reduction in under-recoveries due to regular increases in diesel price, and doubling of natural gas price from April 2014 are good for the oil & gas sector. However, there are reports that ONGC may be asked to bear the same subsidy burden during the April-June period as well.

Though, theoretically, ONGC will benefit from the gas price hike, the government may take it back in the form of higher oil subsidy share to bring down the its fiscal deficit. Barring government interference, ONGC is a very good investment for the long term, so existing investors should hold on to it.

10) Hindustan Unilever

Recommendation: SELL

CMP: Rs 601.40

PE: 34.25

PB: 45.42

Dividend Yield: 3.08%

Sensex Weight: 3.77%

HUL's shares surged to a record high recently after the company's UK parent completed an open offer, raising its stake in the Indian unit by almost 15%. Given the sharp rally, most analysts fear a decline in its share price in the near future. Besides, weak consumer sentiment is likely to keep a lid on volume growth. A weakening rupee also makes imported raw materials costlier, which will put pressure on margins. However, a good monsoon would boost consumption in rural areas, which would improve volumes.

11) State Bank of India

Recommendation: HOLD

CMP: Rs 1,893.40

PE: 7.23

PB: 1.04

Dividend Yield: 2.19%

Sensex Weight: 2.79%

The SBI is already going through a tough period of margin compression and asset quality concerns. These problems may continue for a few more quarters till the economy recovers. Moreover, the finance minister is now putting pressure on PSU banks to reduce lending rates, and some banks have yielded.

Since the competition won't allow banks to reduce their deposit rates simultaneously, margin pressure is going to increase. The aggressive recovery tactics adopted in recent times by India's largest bank may also become difficult to pursue as the general election approaches. Hence, the SBI's immediate outlook is weak. Since most of these negatives are already in the price, long-term investors may hold on to the stock.

12) Tata Motors

Recommendation: HOLD

CMP: Rs 291.95

PE: 9.50

PB: 2.45

Dividend Yield: 0.69%

Sensex Weight: 2.69%

In the auto sector, the commercial vehicles segment is the worst affected. Tata Motors' passenger vehicle segment is also under pressure. Due to these factors, the company's consolidated numbers may remain weak for a few more quarters despite Jaguar and Land Rover's ( JLR) good performance. In addition to the continued traction of the new Range Rover, JLR has a strong pipeline of products for the next two to three years. Among them, the launch of a smaller Jaguar, expected in 2014, is going to be the most significant because it will open up an entirely new segment for the company.

13) Sun Pharmaceuticals

Recommendation: HOLD

CMP: Rs 1,108.25

PE: 38.15

PB: 8.11

Dividend Yield: 0.45%

Sensex Weight: 2.54%

Sun Pharma has grown by leaps and bounds from its humble beginning in 1983. Even so, it is expected to grow by around 20% in the next two years (financial years 2013-15). To make its earnings stream more predictable, Sun Pharma recently settled its ongoing litigation with Wyeth and Atland Pharma by making a lump-sum payment of $550 million. With the litigation out of the way, the earnings growth will take centrestage in this counter. Since most of its earnings are in dollars, the recent rupee depreciation will help Sun Pharma. However, its valuation has skyrocketed in the recent past. Therefore, in the medium term, the stock doesn't hold much potential for upside gains from its current levels.

Sun Pharmaceuticals

14) Mahindra & Mahindra

Recommendation: BUY

CMP: Rs 905.60

PE: 16.58

PB: 2.79

Dividend Yield: 1.44%

Sensex Weight: 2.35%

Though the passenger vehicle segment is going through a difficult phase, M&M could compensate for it with improved tractor sales. Against a 13% fall in the passenger vehicle segment in June on a year-on-year basis, M&M's tractor sales in the same month increased by 23%.

Mahindra & Mahindra

Increased rural income due to election-related spending and a good monsoon should help increase the demand for tractors. M&M is changing its vehicles' specifications to circumvent the additional tax imposed on SUVs. It is planning to launch a new version of XUV 500 with lower ground clearance, and it will be priced Rs 30,000 lower.


15) Bharti Airtel

Recommendation: Sell

CMP: Rs 304.95

PE: 53.59

PB: 2.27

Dividend Yield: 0.33%

Sensex Weight: 2.34%

The telecom company's African operations continue to be a major drag on performance. Two years since it acquired the African business, revenue growth and margins remain weak. In the domestic market, the company's operations have begun to stabilise, with both voice and data traffic growing at a decent pace. However, regulatory issues pose a threat. Last month, a penalty of Rs 650 crore was slapped on the company for violating the country's roaming norms. The prospect of more surcharges and fines from the government, along with the upcoming licence renewals, make the stock's prospects uncertain.

Bharti Airtel

16) NTPC

Recommendation: BUY

CMP: Rs 146.10

PE: 9.55

PB: 1.48

Dividend Yield: 3.94%

Sensex Weight: 1.84%

NTPC's problems may be ending. The country's largest power producer will benefit from the ongoing sector reforms. CCEA's new coal price mechanism will help it import coal to mitigate the shortfall from Coal India supplies. The recent allocation of four more captive coal mines with an aggregate reserve of 2 billion tonne will provide fuel security.


The company is also maintaining its pace of capacity addition: it commissioned around 4,000 MW in 2012-13. At current valuations, it is the sector's safest bet.

Sensex PE

17) Bajaj Auto

Recommendation: HOLD

CMP: Rs 1,867.65

PE: 17.76

PB: 6.70

Dividend Yield: 2.41%

Sensex Weight: 1.65%

Bajaj Auto reported its lowest domestic monthly sales in June since December 2009. The chief problem is muted demand for two-wheelers. The ongoing strike at its Chakan plant caused production losses. The workers are demanding a wage hike and 500 company shares at Rs 1 per share. Tough competition in the twowheeler segment is expected to keep margins low. Better export realisation is the only positive.

Bajaj Auto

18) Dr Reddy's Lab

Recommendation: BUY

CMP: Rs 2,349.90

PE: 23.81

PB: 5.47

Dividend Yield: 0.64%

Sensex Weight: 1.40%

The pharma major's US operations are showing an improved traction, leading to a rally in stock price over the past few months. A string of new product approvals from the USFDA have led to significant product launches that are expected to boost earnings this fiscal year. In the fourth quarter of last fiscal year, Dr Reddy's launched 18 new generic products and filed 14 new product registrations. A weak rupee also provides a fillip to its dollar revenues. Given the high earnings visibility, most analysts are positive about it.

Dr Reddy's Lab

19) Cipla

Recommendation: HOLD

CMP: Rs 405.00

PE: 21.58

PB: 3.61

Dividend Yield: 0.49%

Sensex Weight: 1.24%

The company has given a lower guidance for revenue and margins over the next two years, citing rebuilding of product pipeline in the US. However, its outlook remains positive due to the expected ramp-up in key markets and ongoing expansion plans. Cipla is expected to complete its $488 million takeover of South African Medpro this month.

Its expansion in emerging markets and increased spending on research and development to build product pipeline provide comfort over the medium to long term. However, the stock may remain range-bound in the near term due to its ongoing investment phase.


20) Coal India

Recommendation: HOLD

CMP: Rs 300.00

PE: 10.92

PB: 3.87

Dividend Yield: 4.67%

Sensex Weight: 1.16%

The world's largest coal producer has underperformed the Sensex this year due to its inability to ramp up its production and due to weak coal prices. Growth has been a concern given the delays in environmental and production approvals for mining projects. However, sentiment is slowly turning positive for the stock due to the recent government approval to set up an independent coal regulator. This is expected to speed up clearances, usher in more transparency in pricing, and improve supply. Attractive valuation, improving pricing power and receding policy risks may keep the stock buoyant.

Coal India

21) Wipro

Recommendation: HOLD

CMP: Rs 375.50

PE: 13.94

PB: 3.26

Dividend Yield: 1.86%

Sensex Weight: 1.13%

Though Wipro's valuation is currently cheap compared with that of its peers, this is reasonable because of its lower growth rate and weaker margins. While Wipro is taking a number of correct steps like revamping sales team to increase the number of deals won and moderating attrition by increasing employee satisfaction, the impact of these measures is not yet visible either in revenue or net profit growth.

The guidance given by Wipro's management for the April-June quarter is also weak. This means there is no immediate trigger for the counter. Wipro's expected recovery may get delayed from 2013-14 to 2014-15. However, the counter is quoting at low levels. Existing investors may hold on to the stock.


22) Maruti Suzuki

Recommendation: HOLD

CMP: Rs 1,452.70

PE: 17.54

PB: 2.31

Dividend Yield: 0.55%

Sensex Weight: 1.12%

The entire auto sector is facing headwinds due to the increase in petrol and diesel prices. The jump in costs of imported inputs due to the rupee's depreciation is expected to create pressure on margins within the sector. Since most of Maruti's imports are denominated in Japanese yen, it will benefit from its higher depreciation.

Maruti Suzuki

Hence, unlike other players, it will be able to report decent earnings growth in 2013-14 despite the weak topline growth. Since it is one of the strongest players in the market, Maruti should also be able to capitalise once the expected economic recovery occurs. However, the market price is already discounting these positive factors and, therefore, a significant upside seems limited from current levels in the medium term.


23) Gail

Recommendation: HOLD

CMP: Rs 321.80

PE: 10.15

PB: 1.42

Dividend Yield: 2.98%

Sensex Weight: 1.03%

After the recent gas price hike, gas transmission company Gail could be adversely affected in the near term. Its gas cost will increase substantially, but it will not be able to pass this on to customers as the pricing of both LPG and petrochem is based on import parity. It expects a hit of $218 million annually on pre-tax profits on account of higher costs. This, in addition to its subsidy burden, will dent profitability. Gail, on its part, is trying to free itself from the subsidy burden by changing focus from transportation of gas to trading, thereby reducing its dependence on the regulated business.


24) Tata Steel

Recommendation: HOLD

CMP: Rs 262.80


PB: 0.75

Dividend Yield: 3.04%

Sensex Weight: 1.03%

In addition to the fall in steel prices triggered by global commodity woes, Tata Steel also has to manage its high debt. However, the drastic fall in the stock's price (more than 40% since the beginning of 2013) is much more than warranted. Tata Steel continues to be the strongest domestic player in metals with access to key raw materials.

Tata Steel

The ongoing restructuring in its overseas operations has also started yielding fruit. There are also reports that the company is planning to sell its stake in other group companies to reduce debt and fund its expansion plans. Existing investors may continue to hold on to the stock.

There are no permanent Sensex stocks

25) Hero Motocorp

Recommendation: HOLD

CMP: Rs 1,708.50

PE: 16.11

PB: 6.82

Dividend Yield: 3.51%

Sensex Weight: 0.99%

Hero Motocorp has been affected by the slowdown in two-wheeler demand, clocking a decline in volume in the past few months. It lost some market share in the motorcycle segment to its erstwhile partner Honda. In the domestic market, the company has planned a capex of Rs 25 billion over the next two years. Besides, it has recently started operations in Africa and Latin America, displaying strong intent to gain a firm foothold in other emerging markets. However, stiff competition and continued weak demand in the domestic market is likely to keep the margins under pressure.

Hero Motocorp

26) BHEL

Recommendation: SELL

CMP: Rs 187.85

PE: 6.95

PB: 1.51

Dividend Yield: 2.88%

Sensex Weight: 0.91%

Earnings visibility remains a big concern for this capital goods manufacturer. The prolonged slowdown and poor investment climate are reflected in a falling order book and slackening pace of order execution. As the demand environment remains sluggish, fiscal year 2014 is expected to be tough for the company. Its revenue and profit margin are expected to decline. Given these issues, there appears to be little scope for a rerating in the near term. Despite its attractive valuation, the stock may continue to be an underperformer.


27) Tata Power

Recommendation: HOLD

CMP: Rs 89.45


PB: 1.98

Dividend Yield: 1.29%

Sensex Weight: 0.83%

Tata Power continues to suffer due to issues like losses at Mundra UMPP and lower profitability at the Indonesian coal mines due to weak coal prices. However, with the government bringing in more reforms in the power sector, Tata Power, the country's most efficient power producer, is expected to reap good dividends. Though delayed, electricity tariffs have started going up. The Maharashtra Electricity Regulatory Commission (MERC) has approved a 25% tariff increase for residential consumers from 1 July. With Tata Power planning to increase its capacity at Mundra UMPP to 5,600 MW, the stock may oscillate till there is more clarity about the compensatory tariff.

Tata Power

28) Hindalco

Recommendation: HOLD

CMP: Rs 101.65

PE: 11.45

PB: 0.57

Dividend Yield: 1.38%

Sensex Weight: 0.71%

The stock has corrected sharply this year in line with the downturn in the metals sector. A global slowdown in demand for commodities has taken its toll on the sector. These conditions are likely to persist for a while. For Hindalco, lack of approvals for captive coal mines for its greenfield smelters and weak aluminium prices remain a concern. While near-term positive triggers are not visible, analysts are of the opinion that the negatives are already priced in. Besides, Hindalco's US-based subsidiary, Novelis, lends comfort with good earnings. Given the stock's low valuation, investors should hold on to it for the medium term.


29) Sterlite Industries

Recommendation: HOLD

CMP: Rs 88.30

PE: 4.90

PB: 0.55

Dividend Yield: 2.60%

Sensex Weight: 0.60%

Besides weak global commodity prices, Sterlite Industries, India's largest copper smelter, is currently facing multiple problems. Though the Supreme Court has temporarily allowed Sterlite Industries to operate its smelter, its fight with the Tamil Nadu Pollution Control Board on this issue continues. Other concerns pertain to the merger between Sterlite and Sesa Goa, which is a time-taking process. Sterlite's power division also faces problems like transmission bottlenecks, issues regarding coal quality, and so on. However, all these negatives have already been factored into the price. Hence, long-term investors may continue to hold the stock till clarity emerges on a few of these issues.

Sterlite Industries

30) Jindal Steel & Power

Recommendation: SELL

CMP: Rs 222.20

PE: 7.14

PB: 0.98

Dividend Yield: 0.72%

Sensex Weight: 0.52%

Commodity players across the globe are going through tough times, especially because of the uncertainty created by the US Fed's proposed reduction in quantitative easing. JSP's power division also faces sector-specific problems on the ground. It also has to live with the overhang from the coalgate allegations, though there won't be any immediate impact on earnings because of this. None of the affected blocks are operational or are expected to become operational in the next twothree years. JSP has also not incurred material capital expenditure on these coal blocks or associated projects. Since the shrillness of charges may increase closer to the elections, investors had better avoid this counter for now.

Jindal Steel & Power

The overall recommendation is by ET Wealth. Figures for buy, sell and hold are number of analysts holding these views. PE: Price to earnings ratio; PB: Price to book value ratio.

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