Nifty likely to trade sideways ; 3 stocks which could give 5-11% return

Upside for Nifty is expected to be capped on a short-term basis. We remain selective on specific stocks only and avoid aggressive long positions.

 

Despite outlining government’s measures to strengthen domestic currency and narrow current account deficit, the India equity market continued to witness a volatile trade regime on a range-bound level.

Further, the roll out from US administration to impose 10 percent tariff on Chinese imports continued to dent market sentiment, and once again the index breached below psychological levels 11,500 earlier in the week on Monday.

The Nifty index slipped from its important support level of 11,350-11,300 to touch a weekly low of 11,250 levels over a sustained selling pressure towards the closing hour.

Although the index rebounded marginally during the weekend session, it consolidated over the last two days to close at 11,278.90 levels, down by about 0.08 percent on a week-to-week basis.

The drag dominantly came from PSU Banks and Auto index which was down by 5.81 percent and 2.57 percent, respectively. The FMCG index was the top gainer with about 0.33 percent on the weekly basis.

After making a correction for two consecutive sessions to slip below important level of 11,300 levels coupled with a breach below 5-20-days EMA levels, the index formed a solid bearish candlestick pattern on its weekly price chart, indicating a selling regime.

The weekly RSI on chart stood at 59 levels indicating no major divergence in price, while the MACD continues to trade above the Signal-Line. The immediate hurdle for the index is currently placed at 11,523 and the next important support level is placed at 11,176.

The continuation of negative sentiment over falling rupee coupled with the weakening of global sentiment as trade tariff battle continues to escalate between the two giant economies of the US and China.

As internal advance-decline ratio continues to indicate a negative setup for the domestic market, the sideways direction favouring the downside regime is expected to keep the index range bound.

As an upside for the index is expected to remain capped on a short-term basis, we remain selective on specific stocks only and avoid aggressive long position. We maintain a range bound trade for the index at 11,520 levels on the upside and 11,237 levels on the downside.

Here is a list of top three stocks which could give 5-11% return in next 1 month:

Bhansali Engineering Polymers: Buy| LTP: Rs 137.05| Target: Rs 152 | Stop Loss: Rs 122 | Return: 11%

Bhansalli Engineering witnessed a sharp correction in the last six-month from a price band of Rs 217-160 towards Rs 125-120 levels, taking a strong support at Rs 111 levels.

Although it witnessed a periodic correction on a closing basis, the scrip recently witnessed an upward trajectory after bottoming out at Rs 120 levels and thus indicating a decisive buying trend at current levels.

The momentum indicator outlined a positive trend with weekly RSI inching at 58 levels. Further, in the coming session MACD is also likely to make a bullish crossover to trade above Signal-Line. We have a buy recommendation for Bhansalli Engineering which is currently trading at Rs 136.65.

Bajaj Corp: Buy| LTP: Rs 456.65| Target: Rs 490| Stop-Loss: Rs 425 | Return: 7%

Bajaj Corp made a strong rebound on its six-month price chart after consolidating in a range of Rs 496-476. It made a low of Rs 395 levels and managed to breakout from its crucial level of 100-days EMA levels placed at Rs 430.

The scrip touched a high of Rs 468 levels despite closing marginally below with gain of 6.73 percent on an intraday basis, and saw a significant volume build up against its average level in the previous trading session.

The weekly RSI level at 57 has shown a positive price divergence while MACD indicates a likelihood of bullish crossover in the next few sessions. We have a buy recommendation for Bajaj Corp which is currently trading at Rs 457.55.

Tata Motors: Sell| LTP: Rs 252| Target: Rs 240| Stop Loss: Rs 268| Return: 5%

Despite a periodical reverse trend, Tata Motors continues to remain under selling pressure on a weekly basis. It consolidated from a higher band of Rs 364 levels towards low of Rs 248 levels during the last six months.

It further slipped below from its 200-100-days moving-average level placed at Rs 383-370 levels to decline about 9 percent on weekly basis and thus indicating a short-term pressure on price.

The RSI on chart stood at 35 levels while MACD trading below its Signal-Line, indicating selling regime. We have a sell recommendation for Tata Motors which is currently trading at Rs 251.50

MORE WILL UPDATE SOON!!

Global brokerages see limited upside for Indian market. Here are 10 strong buys for 1-2 years

Goldman Sachs, which was strategically overweight on India since March 2014, has turned slightly cautious towards Indian market in 2018 and lowered its investment view to marketweight from overweight earlier.

  

While bulls were in full control until last month, September is turning out to be a lackluster month. The Nifty50, which touched a record high last month, saw sharp selling pressure in this month taking the index below 11,300.

Escalating trade war fears, sharp drop in the Indian rupee, growing concerns of rising current account deficit due to jump in crude oil prices, selling by foreign institutional investors and risk of rate hike by central bankers are some of the factors that weighed on Indian markets.

Global investment banks such as Goldman Sachs and Morgan Stanley, which have come out with their reports on Indian market, suggest that premium valuation could be a concern and the upside from current levels remains fairly limited.

Global investment firm Morgan Stanley has raised its 30-share BSE Sensex target to 42,000 for September 2019 implying a potential upside of 11 percent, on the other hand, Goldman Sachs maintains a target of 12,000 on Nifty which translates into an upside of little over 5 percent.

Goldman Sachs, which was strategically overweight on India since March 2014, has turned slightly cautious towards Indian market in 2018 and lowered its investment view to marketweight from overweight earlier.

Sectorally, the global investment bank has upgraded defensive stocks and exporters. It is overweight on banks, tech and metals. The key downside risks remain a less stable government.

Morgan Stanley, on the other hand, said Indian equities continued to be in an uptrend and investors should bet on favourite underperformers.

"Investors should choose price underperformers with improving earnings outlook and finally broaden their portfolios by adding small and midcaps," it said.

On its Focus List, Morgan Stanley added SBI, Prestige Estates and Apollo Hospitals, and removed Infosys, Havells India and Zee Entertainment, given the recent downgrades.

We have collated a list of top 10 fundamentally strong stocks from various experts which investors can look at buying with a minimum holding period of 1-2 years:

Dr Reddy’s Laboratories:

The company has reported robust first quarter FY19 results, aided by the launch of gSuboxone. According to the management of the company, it has focus on operational efficiencies which helped in significantly improving its margin profile.

In FY19, its priorities are driving productivity improvement, focusing on core therapeutic areas and big brands, and scaling up New Chemical Entity (NCE) launches done through the Amgen deal.

In the medium to long term, management of the company wants to focus on ramping up biosimilars through internal and partnered assets and building differentiated products in relevant therapies accompanied by further ramping up of the base business.

The management expects 15-20 launches in FY19 and also expects emerging markets to grow 16% YoY led by a robust spurt in Russia and ROW.

Zee Entertainment Enterprises:

The company has led the industry in its evolution and transformation. Along the way, it has entered newer geographies, both domestically and globally, launched multiple channels, strengthened distribution, expanded the genres and widened its audience profile.

Moreover, management focus towards expansion and market share would give strong growth to the company in coming years. During the quarter, its consolidated advertising revenue grew by 18.6% to Rs 1,146 crore.

Domestic advertising revenue growth at 22.3% continued to be strong driven by demand across categories and partly aided by lower growth in the base quarter.

Bajaj Auto:

The company has a diversified business model and has a strong focus on the profitable growth, widening reach in export markets and strategic alliances with global majors.

The domestic 2-wheeler market would start growing from the festive season & would continue to grow for next couple of years. The management has assured that the company would see a very healthy top line growth and a very healthy EBITDA increase in coming quarters.

FY18-19 capex plan stands around Rs 250-300 crore. It would look to expand and strengthen the 150cc Pulsar segment in addition to pursuing new three-wheeler markets within India.

Its total current capacity is approximately about 6.6 million. 3-wheelers will be approximately about 7.2 lakh. The company expects 1.9 million export numbers for FY 19.

UPL:

The company has strong fundamentals and a robust outlook. Its strong focus on brand building and customer reach is helping the company in increasing its market share in major addressable markets.

Moreover, with the acquisition with Arysta LifeScience, the company will be one of the world's largest global crop protection companies, with an innovative and differentiated product portfolio.

The management has been focussing on technological enhancement and new product developments which would aid the further financial growth of the company. Moreover, the company believes new launches would bear fruit in the coming term.

Indian Hotels Company:

The Company plans to continue to grow through a judicious mixture of owned and leased hotels, a de-risked model along with its ability to attract management contracts.

Its command and long & successful track record in operating hotels for third party owners would facilitate growth for the future.

Moreover, it has the ability to deliver improved returns on capital would be driven through product renovation, rigorous asset management, revenue maximization, cost control and reduced leverage and exit from non-core underperforming assets.

It has assigned a capex of Rs 3,000 crore for the next five years and hotel industry occupancy levels and average room rate (ARR) are showing upward trends due to a demand-supply gap.

Mahanagar Gas:

Monopolistic nature of the business and ramp-up/expansion in new geographies would drive volume growth in the coming years. Better economics of CNG/PNG versus liquid fuels in an era of a buoyant crude price regime and maintained spreads are tailwinds for the company.

Axis Bank:

Axis Bank has made significant investments to ride the next growth cycle (post-near-term asset quality challenges), with strong capitalisation and an expanding liability franchise.

The worst seems to have been priced in, and the bank is available at attractive valuations as compared to other similarly-placed peers. The new CEO could bring in a fresh perspective to the bank’s growth plans.

Rico Auto:

Post its split with FCC in 2015 Rico Auto has changed its strategy and now caters to PV and CV markets in addition to 2W. Strong order book of Rs 4800cr, capacity expansion and increasing volumes in alloy wheels, changing product mix are expected to improve the OPM.

Rico is in the process of launching 3 more products and improving profitability may help it get re-rated to a PE comparable with other auto-ancillary companies.

Engineers India:

EIL is likely to benefit from the expected capex in the hydrocarbon and petrochemicals industry as it is a market leader for consultancy. It’s a debt-free company with an order backlog of Rs 7229cr (~3.5x book-to-bill). With a healthy cash balance of Rs 2500cr, it may reward shareholders through another buyback or special dividend.

Sun Pharma:

Sun Pharma is amongst the few companies in India to have made large upfront investments in US specialty. OPM are expected to improve on the back of key drugs launch and moderating price erosion in the US.

The company has 422 approved products in USA and 139 pending for approval. Ramp up of generics and specialty business driven by increased investments augurs well for the company as it improves the launch visibility.

MORE WILL UPDATE SOON!!

Macquarie raises Nifty 1-year target to 12,000, says macro risks higher but not alarming

Macquarie feels the valuation risk is limited to benchmark indices while midcap is still vulnerable.

 

Macquarie India believes cyclical recovery is clearly getting broad-based with infra having turned around and real estate is at the inflection point.

The global brokerage house said the macro risks have increased but are not alarming yet.

The Indian rupee depreciated 14 percent this year to hit record low of 72.97 a dollar and crude oil prices jumped nearly 19 percent to $79 a barrel which both hit trade deficit of the country. In addition, escalated US-China trade tensions added fuel to the fire but improving fundamentals is the only positive and enough to support market.

The Nifty50 gained more than 8 percent and the Sensex rallied nearly 11 percent year-to-date while BSE Midcap and Smallcap indices fell 10 percent and 15 percent respectively.

Macquarie feels the valuation risk is limited to benchmark indices while midcap is still vulnerable.

It holds a Neutral stance on banks & metals while it has positive view on cement, real estate, industrials, IT & autos.

The research house raised 1-year Nifty target to 12,000 based on 16.6x FY20 estimated earnings.

MORE WILL UPDATE SOON!!