Out of 15 stocks mentioned, Morgan Stanley remains overweight on 7 stocks which include names like Coffee Day Enterprises which rose up to 38 percent in the calendar year 2017, followed by Asian Paints which gained 26 percent, and Shree Cements rallied 15 percent in the same period.
Morgan Stanley maintains an underweight rating on as many as 7 out of 15 stocks mentioned in the unloved list which include names like Nestle India, Wipro, Marico, Colgate Palmolive, Mindtree Glaxo Pharma, and IDFC Bank. Most of the names in the underweight category have given a negative return.
Some of the stocks mentioned in the list might fall in the category of unloved or under-owned, but has huge potential left. Colgate being the leader in toothpaste has faced a very tough competition from its rival Patanjali (Dantkanti) & for some products from Dabur.
Overall Nestle & Colgate is considered as underweight with the sales and profits declining. Dabur can be considered as Buy opportunity in the FMCG space with its great outlook," he said. In the overweight category, Singhvi is positive on Coffee Day which has huge potential left in this space with the vision of increasing the number of outlets.
Overall Consumption sector has seen the boom, so we would certainly suggest adding Asian paints, Coffee Day, Hathway Cable & Shree Cements at these levels for further up move," he said. Cummins India is also a very good dividend yield stock and with great fundamentals & for the growth story unlocking can be bought in the range of Rs 700-750.
Morgan Stanley, which gives 50 percent probability to its base case target scenario for Sensex at 35,700 in the next one year or by December 2018, sees growth moving higher in 2018. The global investment bank expects earnings growth to hit 16 percent and 24 percent for FY18, and FY19, respectively.
In the bull case scenario, where the global investment bank has put a probability of just 30 percent could see Sensex rallying towards 41,500. In the bull case scenario, earnings growth is likely to hit 19 percent in FY18, and 27 percent in FY19.
In terms of Nifty, analysts expect strong earnings revival from the second half of FY18 after September quarter earnings which were surprisingly better than consensus estimates.
The Nifty50 rallied nearly 24 percent year-to-date, driven majorly by liquidity on hopes of earnings growth and Modi government reforms.
Research house IDFC Securities expects Nifty earnings to register 15.1 percent CAGR over FY16-19 and set FY19 Nifty EPS target at Rs 579, implying 20.9 percent YoY growth.
Recent quarterly earnings (July-September) were stable to better-than-expected, which supported the market and gave investors a confidence to stay positive on India growth.
The research house is overweight on engineering and capital goods, construction, metals & mining, oil & gas, consumer goods, automobiles, media and pharmaceuticals sectors.
Largecap top picks are SBI, ONGC, Motherson Sumi, HPCL, Hindalco, Bharat Electronics, Aurobindo Pharma and Ashok Leyland while mid-small cap top picks are Kajaria Ceramics, SpiceJet, Ashoka Buildcon and Greenply Industries.
Asian Paints is the leader in the paint segment with more than 50 percent market share. Further, the company also has a strong dealer network of over 40,000 across India and is expected to be the key beneficiary of the government’s reforms like the Seventh Pay Commission which would increase the disposable income and the implementation of the GST which would reduce the tax arbitrage for the unorganized segment.
The company reported a healthy Q2FY18 numbers driven by good same-store-growth (SSG). On a consolidated level, topline grew 21 percent on a YoY basis to Rs 8.8 bn.
A key business that drove growth were CDGL (gross sales up 24 percent yoy), logistics (Sical; +20 percent), and financial services (Way2Wealth; +15 percent). The company added six stores during the quarter and the store count (ex-Kiosk) stood at 1,700.
GlaxoSmithkline Pharma
GSK is among the top ten players in the Indian pharmaceutical market, having a market share of 3.7 percent. Unlike other MNCs, the company has been amongst the few which have taken initiatives to grow their businesses in the Indian market with the consistent launch of new products.
Glaxo announced Rs 864cr investment in India to set up a medicine manufacturing unit. The new facility will substantially increase the company’s manufacturing base.
The drug maker is proactively building capacity in the country as it delivers its portfolio of products in areas such as gastroenterology and anti-inflammatory medicines.
Nestle has been consistently posting sustained volume-led growth across all product categories fuelled by rising volumes in Maggi Noodles. However, ash and lead content found above the permissible limit remains a key concern for Maggi in the near-term.
It will also benefit from a reduction in GST rate on chocolates (from 28 percent to 18 percent) and on condensed milk (from 18 percent to 12 percent). A strong product portfolio, 45 launches over past 18 months and healthy track record of product innovation & renovation render Nestle key beneficiary of urban demand recovery.
With the strong brand equity in its two flagship brands, Parachute and Saffola, Marico has successfully extended its brands into higher growth and underpenetrated categories, like, value-added hair oil (VAHO) (Parachute Advanced), body lotions (Parachute body lotion) and breakfast cereals (Saffola Oats and muesli).
Further, the acquisition of brands like Set Wet and Zatak and Livon provide it a platform to grow in the segments of future through already established brand equity. However, the price of copra has been up by 17 percent sequentially and by 84 percent Y-o-Y in Q2FY18.
The annual crop in FY18 is expected to be lower by around 20 percent due to the deficient monsoons thus causing the price to remain high which will be a key concern for the company as Copra is one of the key raw material.
Hathway Cable has a strong market share in regional cable markets in India. GPON Technology is implemented to provide seamless connectivity. It provides broadband speed as high as 200 MBPS.
FY17 standalone PAT for the company was at Rs 40 crore which is already at Rs 26.7 crore by H1FY18. The Company is constantly providing new value-added services to customers to acquire additional and retain existing market share.
Shree Cement has always been one of the low-cost manufacturers of cement. Further, considering growing emphasis of government on infrastructure couple with schemes such as Bharatmala, Housing for ALL we believe cement companies are up for a boom.
Shree Cement being one of the market leaders and most cost-efficient producer is sure to benefit from this up cycle. Further due to significant growth coming into industry any significant re-rating for the industry shall be commended by market leaders.
Shriram City Union Finance is a niche play in the retail NBFC space with a focus on MSME lending. Factors like moderate loan growth, higher growth in gold loan segment which has comparatively higher spreads, engagement with Mckinsey for MSME lending for non-south market penetration makes it a good long-term bet.
Colgate’s strengths are its wholesale channel recovery post demonetization, strong distribution channel, category development efforts, brand strength, R&D and its concentrated focus on oral care.
New campaigns focusing on the twice-a-day brushing habit and the likely enhanced herbal focus are expected to boost prospects. Colgate will also be a significant beneficiary of a rural market recovery, as its rural market share is disproportionately higher than its urban market share.
High competition in the mortgage business has played out, leading to the margin pressure. LIC faced pressure owing to high-salaried (83 percent) borrowers and a higher yield book. However, with a majority of assets being re-priced, we expect NIM to stabilize and improve hereon.
With LIC’s incremental borrowing at 7.23 percent, re-pricing of liabilities would support NIMs. In Q2FY18, overall growth was 20 percent YoY, driven by individual loans which grew by 18.4 percent and developer’s loan book which increased 65.8 percent.
Headline gross NPAs deteriorated to 0.8 percent QoQ from 0.72 percent, driven by developers’ loan growth. It has PCR of 60 percent in the developers' book. LIC Housing benefits from strong distribution reach of its parent and the highest credit rating.
As the retail franchise continues to improve but they are still on slow pace. The margins remain under pressure on corporate book lending yields and will continue to do so going ahead.
The bank expects to improve presence and improve granularity in its retail franchise with a multi-fold increase in branch presence from 85 branches to 150 by Mar’18 and target to grow retail loans by Rs50bn/year mainly on the higher-yielding assets.
Mind Tree has seen a revenue growth of 14 percent CAGR over the last five years. Even though industry’s growth rate has softened, largely led by account-specific concerns across vendors, the deal sizes in Digital have seen significant improvement, and are up as much as 3x.
The proportion of Digital to overall revenue has increased to 42.6 percent in Q2FY18 from 39 percent in FY17 and 37 percent in FY16. Mind Tree has been investing in Digital through four acquisitions over FY15-16 around P&C Insurance, SAP HANA, CPG analytics, and Salesforce.
The management expects over 40 percent growth in digital (20.9 percent of business); Growth (4-5 percent) returning to its legacy business; Significant cost savings led by the restructuring of deliveries in alliance business.
High growth digital business is now contributing over 20 percent of overall revenues, while zero growth services is now showing a moderate 4-5 percent growth, in turn enabling overall revenue growth of over 12-13 percent.
Led by the continued strong banking sector, Wipro’s revenue growth is bound to recover. Wipro has outperformed peers within the BFSI vertical with double-digit revenue growth (14 percent YoY in Q2FY18) and strong deal wins.
Wipro has gained market share with banking clients, particularly in Europe, and won large deals in recent quarters. Wipro has spent $1bn in M&A in recent years on companies such as Appirio and DesignIt to build its upstream consulting and digital capabilities.
Revenue growth headwinds in the healthcare and telecom verticals should bottom out in Q3FY18 and that consequently, its Q4FY18 growth should be in line with the industry growth.
MORE WILL UPDATE SOON!!
