Top 5 stocks which could turn out to be ‘Dark Horse’ of the year 2018; do you own them?

Investors are better off betting on stocks which can deliver benchmark beating gains.

  

Bulls did not disappoint investors in the first month of the new calendar year as Indian market rose to fresh record highs consistently so far in the month of January.

The rally in Indian markets is not yet over but the money is likely to be made in individual stocks. The risk-to-reward ratio with respect to indices in the short term looks limited, but the current bull run is likely to span out for next 10-15 years.

"We stand at an inflection point whereby there is a high probability that the economy and the markets will shift a gear higher in the year 2018.

The equity markets would increasingly look at earnings delivery given the fact that valuations are robust based on trailing returns. We strongly believe that we are still in the initial stages of a long-term bull market which can span 10 to 15 years.

Investors are better off betting on stocks which can deliver benchmark beating gains. The optimism stems from the fact that earnings are likely to register double-digit gains in the in the FY19.

“We expect strong momentum to continue for equity market over FY19 due to revival in earnings after teething problems of GST, low base of demonetisation, increasing focus of government on infrastructure development even at the cost of fiscal slippage and favourable global headwinds with favourable commodity prices,” Abhinav Gupta, President - Capital Markets, Share India Securities told Moneycontrol.

“Increasing government spend will lead to higher purchasing power and we expect earnings to grow at around 17-18 percent over next year. We maintain our year-end Nifty target at 12,500 in line with current multiples and pricing in the earnings growth over the course of the year,” he said.

We have collated a list of 5 stocks from various brokerage house on stocks which could emerge as a dark horse in 2018 and beyond:

Dr. Reddy’s Laboratories:

CLSA which has an outperform rating on Dr. Reddy’s Laboratories said that Dr. Reddy’s Lab could be a dark horse in 2018 if it is able to monetise its complex products pipeline in a timely manner. The stock has fallen over 21 percent in the calendar year 2017.

Global pharma consolidation will gather steam in 2018 as challenging industry dynamics in the USA drive supplier-side consolidation whereas, in India, the government’s focus on improving quality and good-manufacturing-practice compliance could increase market share at top companies.

Gujarat Gas:

Citigroup sees Gujarat Gas as a Dark Horse in the gas space. Gujarat Gas (GG) is one of India’s largest player in the industrial gas segment and city gas distribution (CGD) with a dominant presence in Gujarat.

The company has been rapidly expanding its reach in Gujarat by way of securing licenses to expand its CGD network across five new areas, making it to 19 districts of Gujarat, Dadra and Nagar Haveli, Thane and Palghar in Maharashtra.

The current rising environmental concerns and the government’s aim to switch to gas-based economy put companies like Gujarat gas in a sweet spot, ICICIdirect said in a report.

“We believe the company’s strong CGD network offers good demand potential due to lower CNG, residential PNG penetration and increased usage of natural gas for industrial volumes,” it said. The domestic brokerage firm has a BUY rating with a target price of Rs1000.

DLF:

ICICI Securities which has a buy rating on DLF sees the real estate player emerging as a dark horse in the next 2-3 years.

DLF is the likely dark horse over the next 2-3 years in the sector, said the report. The promoter stake sale in its rental SPV to GIC Singapore being concluded, DLF is set to receive Rs140-150bn of proceeds by Q4FY18 through promoter fund infusion/QIP which will bring down DLF’s debt by half.

A fresh infusion of money would enable the company to refocus on its strategy in the residential segment, which has been a laggard over the last 4 years.

Tata Motors:

Emkay sees Tata Motors emerging as a ‘Dark Horse’ in the automobile space. Tata Motors would be our dark horse, as currency worries subside and volume growth momentum persists. Among ancillaries, Emkay like Apollo Tyres and Exide Industries, it said in a report.

The Indian automobile industry is in a sweet spot on the back of a cyclical recovery across segments. Rural India is turning out to be the growth frontier for the automobile industry, as near-normal monsoon for 2 years and receding effect of demonetization have bolstered consumer confidence.

Dynemic Products Ltd:

Rudra Shares and Stock Broking who has an Accumulate recommendation on Dynemic Products Ltd. The company is a leading global manufacturers & distributor of Food Colors, Lake Colors, and Blended Colors & US-FDA certified FD&C Dyes.

The future of Dyestuff and Dye Intermediates has good prospects in the coming years owing to its high demand. The growth of dye sector in the future will continue to depend on the performance of end-user industries like paints, textiles, printing inks, paper, plastics, and foodstuffs, said the report.

Food Processing Industries is increasing at a high growth rate in almost every country thus opening the door for the high demand for products that increases the shelf life of processed food. So the overall demand for the antioxidant is expected to increase in coming years.

MORE WILL UPDATE SOON!!

Fresh breakout may take Nifty to 10,900; 2 stocks which could give up to 15% return

The projections indicate that Nifty is all set to fire up towards the 10,850-10,900 zone. While any decline towards the 10,575 mark should be a healthy opportunity to re-enter which is the crucial near-term support for the Nifty.

The New Year cheer extended to the second consecutive week in a row in the year 2018 as the benchmark indices once again closed at fresh lifetime highs. We may call it a pre-Budget rally or positive global wave but what is evident is that the momentum continues to persist.

For the past few days, the Nifty50 has been trying to digest the rally from 10,400 to 10,600 in the previous week. These are healthy signs as even when the index is consolidating it is managing to hit fresh highs.

What’s more intriguing is that the weekly chart is pointing out at another fresh breakout. The projections indicate that Nifty is all set to fire up towards the 10,850-10,900 zone.

While any decline towards the 10,575 mark should be a healthy opportunity to re-enter which is the crucial near-term support for the Nifty.

Bank Nifty, on the other hand, is the pain point at the current juncture. The index did manage to break out a fresh from a Symmetrical Triangle pattern.

Now, the current price behaviour shows that the breakout may turn out to be a false one. However, as long as Bank Nifty holds above the rising trendline support zone of 25,400 long positions can be held on to.

Here is a list of top two stocks which could give up to 10-15% return in short term:

Tata Chemicals: Target Rs845| Stop Loss Rs737| Returns 10%

Tata Chemicals has been consolidating for the past ten weeks and has finally broken out from a classic continuation pattern on the weekly chart.

The price breakout has also been accompanied with a smart uptick in traded volumes. With the previous trend being a solid uptrend, we expect the stock to resume and extend the momentum further.

Other momentum oscillators along with relative strength also indicate that the current up move is here to stay. We expect Tata Chemicals to rally higher towards its potential target of Rs 845.

Delta Corp: Target Rs 363| Stop Loss Rs 298| Returns 14%

Delta Corp has been consolidating for the past twelve trading sessions and has finally broken out from a sideways phase. The stock has formed a bullish engulfing pattern on the daily chart with a large uptick in traded volumes.

Our weekly chart analysis indicates that Delta Corp is on the verge of a Flag pattern breakout. Projections indicate that stock can rally towards its potential medium-term target of Rs 363. Stop loss should be kept at Rs 298.

MORE WILL UPDATE SOON!!

Expect midcap outperformance to continue; hope taxes aren’t tinkered with in Budget: Macquarie

GST is already there and people are coping with these taxes. Along with this, businesses such as cigarettes have gone through a double whammy. This year should not be about tinkering with tax rates.

   

Midcap stocks witnessed a stellar rally last year with the Nifty and BSE midcap index returning 46-50 percent in 2017. They were seen as one of the major reasons behind the market clocking fresh highs last year.

So, will the streak continue in this year? Macquarie Capital Securities strongly believes so. “Midcaps will perform strongly…in the near term, there could be some surprises in IT and pharma names. This could be a year where smaller businesses do well,” Sandeep Bhatia, Head of Equity-India at Macquarie Capital Securities told CNBC-TV18 in an interview.

Speaking on different sectors, Bhatia believes non-banking financial companies (NBFCs) are richly-valued. “They have gone through a bubble phase and we would want to stick to larger banks. PSU banks should do well. In the housing finance space, we are sticking to HDFC.

Meanwhile, in information technology (IT), he feels BFSI segment could take two quarters to come through, but margins need to be taken a look at. He prefers Infosys and in the broader BFSI space, he expects year-end to be much stronger.

Bhatia expects private capital expenditure to come after a year or so, while government spending is happening right now. He likes Larsen & Toubro and expects cash flow and RoE improvement going forward. A good quarter is in sight for the firm, he said.

So, what are the big expectations from the Budget? Will the Centre bring in long-term capital gains (LTCG) tax on equities and will that weigh on the bull market? The bull run is driven by earnings and global events, he said.

On the taxation part, he believes no taxes should be changed this year. “GST is already there and people are coping with these taxes. Along with this, businesses such as cigarettes have gone through a double whammy. This year should not be about tinkering with tax rates.

MORE WILL UPDATE SOON!!

Buy, Sell, Hold: 5 stocks are on analysts’ radar on January 12, 2018

TCS, IndusInd Bank and MAS Financial Services, among others, are being tracked by investors on Friday.

  

Tata Consultancy Services

Deutsche Bank: Rating - Buy | Target - Rs 3,000

As December quarter results were in-line, which means the recovery is on track, Deutsche Bank said while maintaining Buy call on the stock with a target price of Rs 3,000 per share.

Ex-BFSI (banking, financial services and insurance), company has reported a strong revenue growth of 2.4 percent QoQ while the robust growth in digital revenue and turnaround seen in retail & CPG are key positives, the research house said.

However, the decline in Asia Pacific revenue and muted revenue growth in Americas are key negatives, it added.

Management expects BFSI to improve in 2018.

Kotak Securities: Rating - Reduce | Target - Rs 2,700

Kotak Securities has maintained its Reduce rating on the stock, but upped target price to Rs 2,700 due to rollover and marginal change in multiple.

Numbers were in-line on growth & profitability. FY19 setup looks promising and current valuations bake in cyclical uptick, it said.

The research house made a few changes to EPS resulting in 1 percent cut.

Credit Suisse: Rating - Neutral | Target - Rs 2,350

Credit Suisse also said Q3 numbers were in-line, with retail segment bouncing back but not financial services.

It feels the management sounds comfortable with the outlook barring financial services but the growth momentum continues to be soft in the US.

TCS reported 10 basis points expansion in margin at 25.2 percent for Q3. Margin may fall short of targeted range of 26-28 percent on currency woes in FY18, Credit Suisse feels.

UBS: Rating - Buy | Target - Rs 3,000

While maintaining Buy rating on the stock with a target price at Rs 3,000 per share, UBS said numbers were in-line, with retail segment picking up but banking declining.

It expects muted reaction to results and concerned about decline in banking segment.

Sharp decline in IT services spending may result in downward revisions to earnings estimates, it feels.

Management expects retail to return to double digit growth and is confident of achieving 26-28 percent constant currency margins.

JP Morgan: Rating - Neutral | Target - Rs 2,700

While retaining neutral rating with a target price at Rs 2,700 per share, JPMorgan said Q3 results were in-line with estimates and weakness in BFSI dragged revenue growth.

Current valuation appears punchy, factoring in hopes of a demand improvement.

IndusInd Bank

Brokerage: Macquarie | Rating: Outperform | Target: Raised to Rs 1,962

Macquarie said that the bank continues to report steady, in-line numbers. Further, acquisition of Bharat Financial Inclusion is progressing smoothly & likely to be completed by Q2FY19. It also observed that CASA deposits forming 43% of overall deposits is very positive. Bharat Financial merger and non-CV retail growth and proposed insurance foray as key catalysts.

Brokerage: Nomura | Rating: Buy | Target: Rs 1,950

Nomura said that sharp uptick in vehicle loan growth & strong CASA growth were key highlights in Q3. Further, SMA-2 book of less than Rs 1,000 crore provides comfort w.r.t divergence-related negative surprises. An improvement in credit RWA/loans aiding further margin improvement. The bank is also fast closing its liability gap with larger private banks.

Brokerage: Kotak Sec | Rating: Reduce | Target: Rs 1,750

Kotak Securities observed that retail segment shone, while yields were under pressure. A strong overall performance was seen and broadly stable trends were seen in impairment ratios. Current valuations are closer to fair value even as business remains on a strong footing.

Brokerage: Quant | Rating: Accumulate | Target: Rs 1,994

Quant said that margin remained stable primarily from improvement in liability franchise. Meanwhile, asset quality was stable with total stress on the book increasing 6 bps qoq. It remains constructive on bank considering healthy & stable performance outlook. Slowdown in loan growth & further stress in asset quality are key risks.

Brokerage: Citi | Rating: Buy | Target: Rs 2,060

Citi said that the bank continues to see strong operating trends across balancesheet growth. The firm its top pick in Indian financial sector.

Brokerage: Prabhudas Lilladher | Rating: Buy | Target: Cut to Rs 1,915

The brokerage observed that CASA continues to grow but growth intensity was lower due to demonetisation base effect. Lower corporate slippages led to lower credit cost of 60 bps, it added.

MAS Financial

Brokerage: Motilal Oswal | Rating: Initiate Coverage | Rating: Rs 740

The brokerage house said that the company is an efficient player in high product segment. It expects the company to deliver 25% AUM over fy17-20, resulting in 25% EPS CAGR. Further, better margin, op efficiency & controlled credit cost may drive roa improvement of 60 bps. It believes that the company has all the ingredients of a good investment.

Sun TV

Brokerage: BofAML | Rating: Initiate Coverage with Buy

The global research firm expects subscription growth to pick-up to 24% cagr for the next 3 years. Further, upside optionality from NewRIO (Reference Interconnect Order) Regulation/IPL.

Shree Cement

Brokerage: Emkay | Rating: Buy | Target: Rs 22,001

The brokerage said that expansion will drive growth. But, operating performance is below our estimate. It has downgraded FY18/19/20 EPS estimates by 17.6%/13.3%/13.1% to factor in energy costs. It prefers the company due to its efficient cost structure and superior capital allocation.

MORE WILL UPDATE SOON!!

Infosys to announce Q3 earnings on Friday; here are 5 key things to watch out

The key things to watch out for would be its full year guidance and management commentary. Overall it is expected to be soft quarter due to seasonality.

 

Infosys, the country's second largest software services provider, will announce its third quarter earnings on Friday. The key things to watch out for would be its full year guidance and management commentary. Overall it is expected to be soft quarter due to seasonality.

The stock rallied 15.6 percent in quarter ended December 2017, trading at 14.3 times its FY19 EPS.

As it is seasonally a weak quarter for IT companies due to holidays and farlughs in western markets, here are five key factors that investors will focus on:-

Profit

Infosys is expected to report profit for the quarter at Rs 3,609 crore, down 3.14 percent compared to Rs 3,726 crore in previous quarter, according to average of estimates of analysts polled by CNBC-TV18.

Weak earnings before interest & tax (EBIT) and low other income may pull profit lower during the quarter.

Revenue

Analysts expect company's revenue to grow 1.5 percent sequentially to Rs 17,823 crore from Rs 17,567 crore.

Dollar revenue may grow 1 percent to USD 2,754 million from USD 2,728 million QoQ and constant currency growth is expected to be at 1 percent.

Retail was soft in Q2 and that is expected to be weak in Q3 also.

Operational Performance

Operational efficiency levers have been squeezed materially over the last few quarters, so margin expansion might be limited during the quarter.

EBIT margin is likely to contract at 24.1 percent in Q3FY18, compared to 24.2 percent in Q2FY18.

Analysts see negligible cross currency impact on earnings.

Guidance

Full year guidance is the most important factor to watch out for in earnings.

All analysts expect Infosys to maintain its full year constant currency revenue growth guidance at 5.5-6.5 percent and EBIT margin at 23-25 percent.

After Q2FY18 earnings, the company had revised its FY18 guidance lower to 5.5-6.5 percent YoY, implying an ask rate of 0.4-1.6 percent for second half of FY18.

With 0.9 percent QoQ growth expectations for Q3 (1 percent in CC), and 1.5 percent in the following quarter, CNBC-TV18 poll expects Infosys to achieve the mid-point of its CC guidance for FY18.

Investor focus will be on:

Strategy of the new CEO Salil Parekh who took charge as MD & CEO of Infosys on January 2, 2018

US H1B norms

CY2018 demand outlook. Infosys had indicated account-specific weakness and also talked about likely budget squeeze at the year-end (instead of budget flush) in its Q2FY18 results conference call

M&A strategy; total contract value of deal wins.

Focus and strategy for revival of consulting practice.

Pricing outlook and progress on automation.

MORE WILL UPDATE SOON!!