Correction phases are healthy, say experts. M&M, Yes Bank among top 22 bets over one year

We remain overweight on discretionary consumption theme with stocks like Safari Industries, Bata, Blue Star and Parag Milk Foods.

  

After subdued performance till June, the rally in market started in July and is continuing in August. This helped the benchmark indices cross new milestones (38,000 on the Sensex and nearly 11,500 on the Nifty), driven by stable to better-than-expected earnings growth in the June quarter; though it corrected in the past two consecutive sessions on global concerns.

We feel any decline due to external factors would be short-lived and traders should continue with "buy on dips" approach. In fact, it's healthy to have such corrective phase as it eliminates weak hands.

We suggest to keep close eye on global developments along with prevailing earnings season for cues.

To believe that the market may be in wait-and-watch mode till general elections 2019, but this period could also offer opportunities to cherry pick some quality equity investment.

The research house recommend 22 top picks as good bets to utilize this opportunity which are offering healthy returns in the next 1 year. All of these top picks are backed by sound business model and are likely to do well in the coming years.

Here is the list of 22 stocks  which could return up to 58% over a period of one year:

Dewan Housing

We expect the company’s loan growth to remain 29 percent over next two years and earnings growth is likely to be more than 29 percent.

We maintain "buy" on the stock with a target price of Rs 720.

Safari Industries

Safari Industries is the third largest branded player in the Indian luggage industry. Post the management change in 2012, Safari has grown its revenue by 6x in the last 7 years.

We expect its revenue to grow by a CAGR of around 25/40 percent in revenue/earnings over FY2018-20E on the back of growth in its recently introduced new products.

Mahindra & Mahindra

We expect Mahindra & Mahindra to report net revenue CAGR of around 13 percent to around Rs 62,235 crore over FY2018-20E mainly due to healthy growth in automobile segment like utility vehicles (on the back of new launches and facelift of some models) and strong growth in Tractors segment driven by strong brand recall and improvement in rural sentiment.

Further on the bottomline front, we expect CAGR of around 18 percent to Rs 5,600 crore over the same period on the back of margin improvement. Thus, we recommend an Accumulate rating on the stock with target price of Rs 1,050.

Blue Star

BSL is one of the largest air-conditioning companies in India. With a mere 3 percent penetration level of ACs versus 25 percent in China, the overall outlook for the room air-conditioner (RAC) market in India is favourable.

Aided by increasing contribution from the unitary products, we expect the overall topline to post revenue CAGR of around 13 percent over FY2018-20E and margins to improve from 5.8 percent in FY2018 to 6.2 percent in FY2020E.

We recommend a Buy rating on the stock.

Siyaram Silk Mills

Going forward, we expect SSML to report a net sales CAGR of around 14 percent to around Rs 2,272 crore and adjusted net profit CAGR of around 14 percent to Rs 150 crore over FY2018-20E on back of market leadership in blended fabrics, strong brand building, wide distribution channel, strong presence in tier II and tier III cities and emphasis on latest designs and affordable pricing points.

At the current market price, SSML trades at an inexpensive valuation. We have a buy recommendation on the stock and target price of Rs 851.

Maruti Suzuki

The automobile sector is expected to benefit from the GST implementation.

Due to the favourable business mix, company has also been seeing improvement in the margins. Company has already moved from around 11-12 percent together with higher operating leverage at Gujarat plant, increasing Nexa outlets, and improving business mix, we believe that company has further room to improve its margins.

We have a Buy rating on the stock.

HDFC Bank

We expect the company’s loan growth to remain 22 percent over next two years and earnings growth is likely to be more than 21 percent. We maintain Accumulate on the stock with a target price of Rs 2,350.

Music Broadcast

Capex for 39 licenses have been done for the next 15 years, hence no heavy incremental Capex requirement would emerge.

Moreover, the maintenance capex would be as low as Rs 5-10 crore. This would leave sufficient cash flow to distribute as dividend.

We have a Buy recommendation on the stock and target price of Rs 475.

KEI Industries

KEI’s export (FY18 – 16 percent of revenue) is expected to reach a level 20 percent in next two years with higher order execution from current OB and participation in various international tenders.

We expect a strong around 25 percent growth CAGR over FY2018-20 in exports. We expect KEI to report net revenue CAGR of around 16 percent to around Rs 4,646 crore and net profit CAGR of around 19 percent to Rs 207 crore over FY2018-20E. Hence we have a Buy rating on the stock.

GIC Housing Finance

GICHF has healthy capital adequacy, and is seeing an increase in demand for home loans.

We expect the GICHF's loan growth to grow at a CAGR of 23 percent over next two years and RoA/RoE to improve from 1.8/20.3 percent in FY18 to 1.9/23 percent in FY20E. We have a Buy rating on the stock.

Yes Bank

YES Bank currently trades at 2.4x times FY20E Book Value, which we believe is reasonable for a bank with high-growth traction, improving CASA and prospect of improving NIM.

Matrimony.com

We expect MCL to report net revenue CAGR of around 15 percent to around Rs 450 crore over FY2018-20E mainly due to strong growth in online matchmaking and marriage related services coupled by its strong brand recall and large user database.

On the bottomline front, we expect CAGR of around 15 percent to Rs 83 crore over the same period on the back of margin improvement.

RBL Bank

RBL Bank has grown its loan book at healthy CAGR of 56 percent over FY10-18. We expect it to grow at 30 percent over FY18-20E.

The bank currently trades at 2.9x its FY2020E price to book value, which we believe is reasonable for a bank in a high growth phase with stable asset quality.

Parag Milk Foods

Parag Milk Foods is one of the leading dairy products companies in India. The company has been successful in creating strong brands like GO, Gowardhan and in introducing new products like Whey Protein. It has become the 2nd player in processed cheese (after Amul) in a short span of 10 years and commands 33 percent market share.

We expect Parag to report net revenue/PAT CAGR of 18/36 percent respectively over FY2018-20E.

ICICI Bank

The gradual improvement in recovery of bad loans would reduce credit costs that would help to improve return ratio.

The strength of the liability franchise, shift in loan mix towards retail assets and better rated companies, and improvement in bad loans would be a key trigger for multiple expansion. We recommend a Buy rating on the stock, with a price target of Rs 416.

Aditya Birla Capital

We expect financialisation of savings, increasing penetration in Insurance & Mutual funds would ensure steady growth.

Further, Banca tie-up with HDFC Bank, DBS and LVB should restore insurance business. We recommend a Buy rating on the stock, with a price target of Rs 218.

Aurobindo Pharmaceuticals

We expect Aurobindo to report net revenue CAGR of around 13 percent & net profit to grow at around 5 percent CAGR during FY2018-20E, due to increased R&D expenditure.

However, valuations of the company are cheap versus its peers and own fair multiples of 17-18x. We recommend Buy rating.

GMM Pfaudler

GMM Pfaudler is the Indian market leader in glass-lined (GL) steel equipment used in corrosive chemical processes of agrochemicals, specialty chemical and pharma sector.

GMM is likely to maintain over 20 percent growth trajectory over FY18-20 backed by capacity expansion and cross selling of non-GL products to its clients.

Jindal Steel & Power

Owing to continuous demand of steel from infrastructure, housing and auto sectors along with limited addition of steel capacity in near term and favorable government policies augur well for JSPL to perform well going forward, we expect JSPL’s utilisation to improve to 80-85 percent by FY19.

JSPL is trading at attractive valuation to its peer, we value the stock based on asset based approach of Steel segment on EV/Tonne basis and Power segment on EV/MW basis.

Shriram Transport Finance

SHTF's primary focus is on financing pre-owned commercial vehicles. CV/LCV sales grew by 20/25 percent in FY18, respectively.

We expect AUM to grow at healthy CAGR of 20 percent over FY2018-20E led by pick up in infra/ construction before 2019 elections, macro revival and Ramping up in rural distribution.

We expect loan book/PAT CAGR of 20/45 percent respectively over FY2018-20E. At 2.2x FY20E ABV, valuation appears reasonable.

Bata India

We expect Bata to report net revenue CAGR of around 16 percent to around Rs 3,555 crore over FY2018-20E mainly due increasing brand consciousness amongst Indian consumers, new product launches and focus on women's segment (high growth segment).

Further, on the bottom-line front, we expect CAGR of around 19 percent to Rs 323 crore over the same period on the back of margin improvement (increasing premium product sales).

Thus, we initiate coverage on Bata India with Accumulate recommendation and target price of Rs 1,007.

Amber Enterprises

Amber Enterprises India is the market leader in the room air conditioners (RAC) outsourced manufacturing space in India.

We expect Amber to report consolidated revenue/PAT CAGR of 28/51 percent respectively over FY2018-20E.

Its growing manufacturing capabilities and scale put it in a sweet spot to capture the under penetrated RAC market in India.

MORE WILL UPDATE SOON!!

Looking for momentum plays? Top 5 stocks that could return 9-15% in 1-2 months

If the market starts to trade below 11,340 levels, expect profit booking towards 11,200-11,170, which is a major support level.

  

The domestic equity market got off to a weak start on Monday as Turkey’s economic crisis sparked contagion fears, which sent emerging market currencies to multi-year lows. The Nifty closed Monday at 11,356 levels, down 0.65 percent for the day.

On the weekly chart, the index touched a rising channel connecting lows (9,959-10,558) and highs (10,929-11,495). After forming a ‘Small Bodied’ candlestick on the weekly chart, the index has seen a gap-down opening on the daily chart as well.

If the market starts to trade below 11,340 levels, we expect profit-booking towards 11,200-11,170 levels, which is a major support level. On the upside, a break above 11,415 levels can see the index test 11,500 levels. In Nifty options, maximum put open interest is placed at 11,000 strike, followed by 11,200 strike. For calls, the same is placed at 11,500 strike.

Call writing was seen in 11,400 and 11,500 strike, while unwinding was seen in 11,400 and 11,300 puts. Some writing was seen in 11,200 put, suggesting support at 11,200 and resistance at 11,500. India VIX closed at 13.4 and is seeing consolidation at lower levels. A break above 13.5 could lead to profit-booking in the market.

Here is a list of top five stocks which could return 9-15% in the next 1-2 months:

United Breweries: Buy| CMP: Rs 1,298 | Stop loss: Rs 1,240 | Target: Rs 1450 | Return: 12%

The stock formed a major bullish cup and handle bottoming out the pattern on the monthly chart over the three-year period. On the weekly chart, the stock has formed a bullish inverted head and shoulders pattern over the last nine months.

The decline in the month of June and July has taken support at 200-day moving average and price has rallied from the average to close at breakout level.

In Monday’s session, the stock has seen a strong momentum and high volumes action indicating buying participation in the stock. Price has given breakout from Bollinger band on the upside with the expansion of band on daily chart suggesting a continuation of the rally.

The momentum indicators are in a bullish mode suggesting a breakout is likely to be on the upside. Thus, the stock can be bought at current level and on dips towards Rs 1,280 with a stop loss below Rs 1,240 for a target of Rs 1,450 levels.

Tata Elxsi: Buy | LTP: Rs 1415 | Stop loss: Rs 1365 | Target: Rs 1550 | Return: 9.5%

The stock is in a long-term uptrend forming higher tops and higher bottom formations on its weekly chart. The stock touched a high of Rs 1,491 couple of weeks back and has slowly seen a correction towards Rs 1,375 levels.

After four days of consolidation, the stock is showing signs of breakout on the upside. The price has moved above the 21-days exponential moving average that has acted as a support for the stock in the past.

The Relative Strength Index (RSI) has given a positive crossover with its average on the daily chart suggesting a short-term correction and resumption of the uptrend. Thus, the stock can be bought at current level and on dips to 1400 with a stop loss below Rs 1365 and a target of Rs 1550 levels.

Infosys: Buy| LTP: Rs 1409 | Stop loss: Rs 1360 | Target: Rs 1620 | Return: 15%

The stock has been in an uptrend for the last one year forming higher tops and higher bottoms. After witnessing a breakout above its previous all-time of Rs 1278, the stock tested the breakout level and seen continuation of the uptrend since then.

The price witnessed a short-term consolidation of two weeks which eventually led to a breakout to close at a new all-time high. The stock continues to hold above 21-day exponential moving average and heading higher.

The price has given a breakout from the Bollinger band on the upside with the expansion of band on daily chart suggesting a continuation of the rally.

The daily MACD line given positive crossover with its average and moved above the equilibrium level. Thus considering the above evidence, the stock can be bought at current level and on dips to Rs 1395 with a stop loss below Rs 1360 and a target of Rs 1620 levels.

Nestle India: Buy| LTP: Rs 10851 | Stop loss: Rs 10450 | Target 12000 | Return: 11%

The stock has been in an uptrend forming higher tops and higher bottoms on daily chart since its breakout from major consolidation pattern at Rs 8000 odd levels in the month of April this year.

The stock has been moving along the 21-day exponential moving average and heading higher. The weekly MACD has given a positive crossover with its average. Thus, the stock can be bought at current level and on dips to Rs 10750 with a stop loss below Rs 10450 for the target of Rs 12000 levels.

Larsen & Toubro Infotech: Buy| LTP: Rs 1724 | Stop loss: Rs 1660 | Target 1900 | Return: 10%

The stock is in a long-term uptrend forming higher tops and higher bottoms on the weekly charts. For the last five weeks, the stock has been consolidating between Rs 1880 and Rs 1650 odd levels.

For the last seven sessions, it has been trading at the lower end of the range. Also, the stock is currently trading at a 50-day moving average which has been acting as support for the price and heading higher.

Hence, the stock is trading at important support levels. The daily Stochastic has given positive crossover with its average. Thus, the stock can be bought at current level and on dips to Rs 1700 with a stop loss below Rs 1660 for a target of Rs 1900 levels.

MORE WILL UPDATE SOON!!