Market Week Ahead: Rupee, trade war likely to weigh on markets; oil and macro data to be in focus

Here are top 10 factors that will keep traders busy next week.

  

The market took a breather as bears managed to get full control at Dalal Street for the first time in last seven consecutive weeks, thanks to a sharp weakness in rupee owing to dollar demand and higher crude oil prices.

The 50-share NSE Nifty corrected 0.78 percent to close the week at 11,589.10 and the 30-share BSE Sensex lost 0.66 percent to 38,389.82 after rising 6 percent in previous six straight weeks. But the weekly losses trimmed due to short covering or value buying in last couple of sessions on stability in rupee and crude oil prices.

Broader markets underperformed frontline indices with the BSE Midcap index falling 2.2 percent and Smallcap 1.7 percent in the week gone by.

The weak start to September month does not mean bulls are out of the game. Consolidation may continue for a while until things like crude, rupee and trade war stabilise.

sentiments will continue to remain sluggish. Global clues, macroeconomic data, movement of rupee against the dollar and crude oil price movement will dictate the sentiments in the near term.

Indications are mixed at present and we feel Nifty would face pressure at higher level. Traders should limit leveraged positions and use bounce to reduce exposure. Also, maintain extra caution in stock selection.

We does not expect big fall as fundamentals are improving and a lot of companies in Nifty 50 already benefited from rupee fall. The fall in rupee is a bit of catch-up to other emerging market currencies like Argentina peso, Turkish lira, etc. but the market has done very well despite a sharp fall in the currency.

After the recent correction emerging markets (EM) are good buying opportunities, unless something happens bad in China, which will affect the EM contagion. "Stable dollar and China can get EM out of the woods.

The stock market will remain shut on Thursday for Ganesh Chaturthi.

Here are 10 key factors that will keep traders busy next week:

Rupee

The first key thing to watch out for in the coming week would be the Indian rupee that has seen sharp depreciation to hit a historic low of 72.10 against the US dollar last week, but managed to recover on Friday.

It corrected a percent from 71 to close the week at 71.74. Year-to-date fall in currency was 12.32 percent due to persistent global headwinds and concerns on macroeconomic front.

Experts think rupee will stabilise in next few weeks due to likely intervention by RBI and government, but if it falls more than expectations, the currency depreciation cost could outweigh benefits like exports and automatic adjustment of trade deficit in policy circles.

We believe, policy makers should be equally mindful of the costs of rupee depreciation. There are many components of such cost like India's short term debt obligations at $218 billion due on Dec’18, oil import bill, inflation, consumption and fiscal cost.

On the other hand, dollar demand structurally continued to be strong as data remained solid whether it is jobs or manufacturing.

Crude

Crude is another important key point to look at as after stabilisation from $80.50 a barrel levels to around $71-72 in two-month period moved up again towards $80 followed by correction in last couple of sessions.

Brent crude oil futures lost 0.8 percent during the week and corrected 3.6 percent from the weekly high of $79.72 a barrel on stronger dollar, weakness in equity markets and tropical storm Gordon.

Crude is always a risk for country like India, which imports more than 80 percent of oil requirement.

The key risk is a rise in crude price accompanied by a fall in rupee. Beyond a threshold, this combination is going to push current account deficit to a point where it becomes highly inflationary for the economy and can disturb the fiscal balance. The recent rise in bond yield is indicative of the same and that surely implies the possibility of both earning downgrades and valuation multiple ranges shifting downward.

Trade War

Trade war between world's largest economies US and China seems to be endless as both countries have been playing tit-for-tat game.

After the expected implementation of tariff on $200 billion worth of Chinese goods very soon, US President Donald Trump on Friday announced another tariff list saying the US is ready to put tariff on an additional $267 billion worth in Chinese goods.

Hence, experts said the possibility of talks for trade deal between both countries are fading as there is likely revamp of North America Free Trade Agreement (NAFTA) from the US. "We are surprised by the market which has not reacted to recent US tariff on $200 billion worth of Chinese goods," Mihir Vora, Chief Investment Officer of Max Life Insurance said.

Macro Data

The most important data point to watch out for would be July industrial production and August CPI inflation due on Wednesday. WPI inflation data for August will be announced on Friday.

Industrial production rose to a five-month high of 7 percent in June while CPI inflation fell to 4.17 percent in July, lowest in nine months, driven by cheaper food items.

Foreign exchange reserves for the week ended September 7, deposit & bank loan growth for week ended August 31, and balance of trade for August will also be released on Friday.

Fund Flow

Foreign institutional investors turned net buyers of around Rs 1,900 crore in September so far against more than Rs 2,000 crore worth of selling in August. In FY19 so far, they have been net sellers of about Rs 13,000 crore in India compared to Rs 1,000 crore worth of buying in same period last fiscal.

Experts believe the FII flow is unlikely to improve soon as investors will closely watch indication of general elections before entering in India big way. They expect a consistent flow from domestic institutional investors (DIIs) will continue.

DIIs continued to be net buyers since April 2017 helping the market to remain positive in terms of returns. These investors bought more than Rs 1,100 crore worth of shares in September so far, as per provisional data.

Technical Outlook

The Nifty50 after recent correction moved towards near term resistance level of 11,600 and got support at 11,500-11,550.

The recovery in the last couple of sessions indicated that the index may make an attempt to move towards 11,700-mark but formation of 'Hammer' kind of pattern for last three consecutive days suggested that the consolidation is expected to continue for a while before getting directional move on either side.

Bullish reversal candle on daily scale (Friday) suggests a bounce back move while Bearish Engulfing candle on weekly scale suggests a limited upside, thus a tug of war between bulls and bears are likely to continue.

The index has to continue to hold above 11,550 zones to extend its up move towards its 61.80 percent retracement of 11,620 then 11,666-11,700 zones while on the downside supports are seen at 11,500 then 11,450 zones.

With trade tensions coming into limelight once again, Amit Gupta of ICICI Securities expects Nifty to remain volatile with major support around 11,450 levels.

F&O Picture

Options data indicated that maximum call open interest (OI) of 40.01 lakh contracts was seen at the 11,800 strike price, which will act as a crucial resistance level for September series, followed by 12,000 and 11,600 strikes.

Maximum put open interest of 47.64 lakh contracts was seen at the 11,500 strike price, which will act as a crucial support level for September series, followed by 11,400 and 11,000 strikes.

Call unwinding was seen at immediate strikes while Put writing was seen at 11,500 and 11,600 strikes.

Option band with its early OI inventory signifies an immediate trading range in between 11,500 to 11,700 zones. India VIX had a spurt of 10.24 percent at 13.89 and rise in VIX suggests limited upside in the market.

Stocks in Focus

Tata Motors: Jaguar Land Rover reported total retail sales of 36,629 vehicles in August, down 4.9 percent YoY. Jaguar retail sales up 7.7 percent YoY at 11,802 vehicles and Land Rover sales down 9.9 percent to 24,827 vehicles. Retail sales up 64.9 percent in UK, overseas markets 20.2 percent and North America up 2.5 percent, with Europe slightly below last year (up 3.1 percent) while China sales down 38.1 percent YoY.

Reliance Capital: Company has received Certificate of Registration from the Reserve Bank of India as Core Investment Company - Non-Deposit Taking Systemically Important Institution.

HDFC Life board to meet on September 12 to consider appointment of new MD, CEO

Jet Airways gets government approval to appoint Sharad Sharma as independent director

Axis Bank appoints Amitabh Chaudhry as MD & CEO, to take charge from Jan 1

Adani Enterprises: Adani Agri Logistics (AALL), a wholly owned subsidiary of the company, has incorporated a WOS namely Adani Agri Logistics (Samastipur).

RITES: Company has secured an additional work of Rs 294.67 crore from Ministry of Railways for doubling of Dharmavaram Penukunda rail lines (41.5 Kms) in South Western Railways.

Cyient: Cyient Australia Pty Ltd, a wholly subsidiary of Cyient Limited has acquired 86 percent in Cyient KK (another subsidiary of the company).

Goa Carbon: Production for August at 13,730.8 MT and Sales at 14,726.8 MT.

Akzo Nobel India: Jayakumar Krishnaswamy will be stepping down as the Managing Director of the company with effect from September 12 and Board appointed Rajiv Rajgopal as Managing Director with effect from November 1. Pradip Menon will be stepping down as the Chief Financial Officer of the company with effect from September 14.

Zenith Exports: IL&FS Securities Services released 3,08,224 equity shares of the company, representing 5.71 percent of the paid-up capital on September 6.

Omax Autos: Board has approved the proposal for establishing a new manufacturing unit at suitable location in Uttar Pradesh, for manufacturing products and equipment supplied to Railways.

CES Limited: Company has withdrawn record date of September 21 for bonus issue of 27 equity shares for every 1 equity share held.

Indo Count Industries: ICRA reaffirmed its long term rating as AA minus and revised outlook on the long term facilities to Stable from Positive. CARE reaffirmed long term bank facilities as AA with outlook as Negative.

Mcleod Russel: HDFC AMC through its three funds hold 5.29 percent stake in the company.

Divya Jyoti Industries: Ankit Maheshwari has resigned from the post of Chief Financial Officer of the company w.e.f. September 6.

7NR Retail: Due to pre-occupation Deepak Rawal has resigned from the post of internal auditor of the company for the financial year 2018-19.

Williamson Magor: Board approved the proposal to issue secured redeemable non-convertible debentures of face value of Rs 10,00,000 each aggregating to Rs 100 crore on private placement basis to IL&FS Financial Services.

Sical Logistics: Board approved issue of equity shares on preferential basis.

Reliance Power & Reliance Naval: Both companies pledge shares with Yes Bank.

Bank of Maharashtra: RBI imposes penalty of Rs 1 crore for contravention of master circular on fraud.

Bank of India: RBI imposes Rs 1 crore penalty for contravention of circular on fraud.

Union Bank Of India: RBI imposes penalty of Rs 1 crore for contravention of circular on fraud.

MORE WILL UPDATE SOON!!

Nifty to consolidate amid IIP, WPI data; top 3 stocks to bet on

On a weekly basis, profit booking was seen in the market last week after six consecutive weeks. Along with the Nifty, the Bank Nifty, Midcap and Smallcap indices have also seen strong selling pressure during the first half of the week.

  

Depreciation of the rupee versus the dollar, higher crude prices and worries over a trade war between the United States and China were the main reason for the weekly fall. At the end of last week, the Nifty closed 91.4 points lower against its previous week's close.

This week has only four trading days. We expect the Nifty to consolidate between last week’s high-low levels, with quality stocks rallying. There are many important events this week. Consumer Price Inflation (August) and Index of Industrial Productivity (July) will be declared on September 12. Wholesale Price Inflation (July) will be declared on September 14.

On September 12, Apple will unveil its new iPhones. From an earnings point of view, a bunch of companies are going to announce their results like Reliance Home Finance, Reliance Capital, Power Finance Corporation, Tourism Finance Corporation of India and Rural Electrification Corporation.

Our past recommendations like Dr Reddy’s Laboratories, Ajanta Pharma, L&T Technology Services, Larsen & Toubro Infotech, Suven Life Sciences, Sun Pharmaceutical Industries, ITC, GMR Infrastructure, Mahindra & Mahindra and Adani Green Energy have given fantastic returns in the very short term.

Alkem Laboratories:

Alkem Laboratories produce high-quality branded generics, generic drugs, active pharmaceutical ingredients and neutraceuticals, which market in India and over 50 countries internationally. It has an extensive manufacturing footprint with a total of 16 manufacturing facilities including 14 in India and 2 the United States.

Company is having comprehensive portfolio of over 700 brands covering all the major therapeutic segments. It has reported excellent results for 1QFY19. Its sales and EBITDA grew by 27.19 percent YoY and 86.08 percent YoY, respectively, while PAT increased by 90.26 percent to 136.15 crore. EBITDA margins in Q1FY19 were at 14 percent vs 9 percent in Q4FY18 and 9 percent in Q1FY18.

Last month Company has successfully cleared the USFDA inspection at Baddi plant. At the CMP, the stock trades at a P/E of 38x.

Technically stock is ready for big breakout. Its daily and weekly charts look highly promising. We are recommending a buy for medium term.

Bharat Forge:

Bharat Forge (BFL), the Indian multinational is a technology driven global leader in metal forming having transcontinental presence across ten manufacturing locations, serving several sectors including automotive, power, oil and gas, construction & mining, rail, marine and aerospace.

BFL has posted a quite healthy growth in Q1FY19. Its profit zoomed 33.92 percent to Rs 234.46 crore against Rs 175.08 crore. EBITDA increased 24 percent to Rs 428.8 crore against Rs 345.7 crore while sales increased by 23.2 percent to Rs 1479.66 crore against Rs 1200.08 crore. Its EBITDA margin improves to 29 percent from 28.8 percent.

Company is setting up Aluminum Forging facility at BF PMT in Tennessee, USA at a cost of USD 55 million. This facility in addition to Al forgings in Europe will help company to enhance its presence in the light weighting technology used in passenger vehicles.

Stock is trading at a PE ratio of 39x. The stock looks good on the daily and weekly chart so we are recommending a buy for medium term.

Super Crop Safe:

Super Crop Safe (SUCROSA) is R&D driven agro chemical with focus on niche products. The company has successfully developed and commercialized high margin bio products through its R&D. Such products are Super Gold, triNETRA and Artica which are getting quite strong response from the market.

Company is aiming to launch 3-4 high margin -high demand products from its R&D every year, which will further strengthen its margin. We believe this approach would add vigor to the company's performance in coming 1-3 years.

At CMP, the stock is trading at PE of just 18.15x on its EPS (TTM) of Rs 1.33 per share. The stock is available at a discount compared to industry PE of 40.18x. Company’s EBITDA grew 37.84 percent CAGR in last four years while PAT increased 77.29 percent CAGR in last four years.

For Q1FY19, its PAT soared 41.25 percent to Rs 1.13 crore. Its EBITDA margin for Q1FY19 stands at 11.45 percent as against 7.66 percent in Q1FY18. We believe this stock can become multi-bagger in a long run, so we are recommending a buy for long term investment prospective.

MORE WILL UPDATE SOON!!

Nifty to hold above 11,550 to extend upmove towards 11,620 this week

We See support for the Nifty at 11,500 and 11,450 on the downside.

 

The Nifty drifted lower on Friday but managed to attract buying interest. Strong momentum was witnessed in the last hour of the session, with the index heading towards 11,600. It has been forming a Hammer candle for the last three sessions, which indicates that the decline is being bought into.

It has started to form higher highs-higher lows after weakness was seen in the first three sessions of last week. A bullish reversal candle on the daily scale suggests a bounceback, while a Bearish Engulfing candle on a weekly scale suggests limited upside, thus the tug of war between the bulls and bears is likely to continue.

The Nifty now has to continue to hold above 11,550 to extend its upmove towards its 61.80 percent retracement of 11,620, then 11,666-11,700 zones. On the downside, supports are seen at 11,500, then 11,450 zones.

The index witnessed sharp selling pressure in the first three sessions, but staged a recovery from the lows in the last two sessions of the week. It has negated the formation of higher top–higher bottom on a weekly scale and till it doesn’t surpass its recent top of 11,760, limited upside could be seen in the market.

On the option front, maximum put open interest (OI) is seen at 11,500 and 11,400 strike. Maximum call OI is seen at 11,800 and 12,000 strikes. We have seen call unwinding at immediate strikes, while put writing is seen at 11,500 and 11,600 strikes. Option band, with its early OI inventory, signifies an immediate trading range between 11,500 and 11,700 zones. India VIX spurted to 10.24 percent at 13.89. The rise in VIX suggests limited upside in the market.

The Bank Nifty has broken out of the 27,750-28,388 band after consolidation for the past 19 sessions. It drifted lower to 27,135 zones. It has been forming multiple Hammer candles near its support zone, but follow-up buying is missing above 27,500. Now, it has to continue to hold above 27,440-27,500 zones to surpass its hurdle of 27,750. On the downside, support is seen at 27,165, then 27,000 zones.

We expect stock-specific positive moves in Reliance Industries, TVS Motor Company, Mahindra & Mahindra, Bajaj Finance, JSW Steel, Tata Steel and RBL Bank to name a few, while see limited upside in select banking stocks.

MORE WILL UPDATE SOON!!

Buy Cyient CMP 805 Target->900--950+ Stop Loss 766 Time Frame:6 Months

  

MORE WILL UPDATE SOON!!

December target for Nifty at 12K, see pharma as a good turnaround play

For the market, the expert sees earnings to set the tone going ahead, the pace of this recovery is likely to be a gradual one.

Our top favourite stocks are:

Even as the Indian currency has been hitting fresh record lows, experts at Reliance Securities feel that rupee could find some resistance around 72 per US dollar. The currency has seen some erosion on the back of high crude prices along with dollar strengthening.

On the higher side, crude should face resistance near USD 80.5 per barrel that was tested in May 2018. Any breakout above USD 82 per barrel levels, the crude oil price would surge to USD 91 per barrel.

For the market, We expect earnings to set the tone going ahead, the pace of this recovery is likely to be a gradual one though. “Our December 2018 target for Nifty is at 12,000".

Technically, the rupee has been weak since the start of the year from the lows of 63.20 against the US dollar to an all-time high of Rs 71.97 against the US dollar. We believe the Indian rupee will find some resistance around the 72-levels against the US dollar.

Brent crude has bounced from its 200-day average near to USD 70 per barrel. On the higher side, it should face resistance near USD 80.5 per barrel that was tested in May 2018. Any breakout above USD 82 per barrel levels, the crude oil price would surge to USD 91 per barrel.

 Outlook on the market for the remainder of 2018 and for rest of FY19

The upside for the market for the rest of 2018 is limited. While the macro risks are rising, current earnings recovery provides the positive traction for the market. We expect the market likely to move up in 2018, but the pace of the up move is more likely to be gradual. Our December 2018 Nifty50 index target is 12,000.

Earnings recovery is the key. Last fiscal ended March 2018 (FY18) saw a very healthy earnings growth for the Nifty 50 index of 17% and expectations for the current fiscal ending March 2019 (FY19) are mostly in the range of above 15%.

Earnings growth is the positive trigger for the market. While the market is keeping a close eye on the crude oil price movement and the Indian rupee, it will closely watch the state elections that are scheduled towards the end of 2018. We see the Indian market to remain volatile.

A significant part of correction for midcaps is already done but the market is still in risk aversion mode as dictated by the diversion in the stock price performance of top 10 names versus the broader market. Rising macro risks and a possible increase in market volatility do not augur well for the small-caps and mid-caps.

However, quality mid-caps with strong return ratios, lower leverage and high cash generation will still continue to be preferred even though they might be perceived as expensive.

Global cues now mostly emanate from the US. Trade-related announcements and the statements by the Federal Reserve continue to impact the market. The market will keep close tabs on these developments.

Our outlook on the following sectors are:

FMCG: Positive from operating performance basis but valuation challenges persist at current levels. ITC is a good bet at current levels as it will see softening base and is attractively valued. Apart from rural is a good theme to play.

Metals: Some positives are emerging for the sector with some easing on trade challenges but volatility could persist.

Aviation: Crude moving up and inability to take pricing up sufficiently is a challenge for the sector.

Pharma: One of the best turnaround plays. The US pricing scenario seems to be stabilizing and challenges in plant clearances are past their peak. Earnings growth trajectory should improve going further and dollar appreciation tail winds offer improving visibility for earnings.

Banks & NBFCs: Earnings growth challenges for the banking sector could persist for a couple of more quarters but a bulk of NPA recognition has happened. With improving nominal GDP growth rate, the credit growth should pick up. Preference for private retail banks over PSU banks is likely to continue.

MORE WILL UPDATE SOON!!

RBL Bank, Prabhat Dairy among top 10 stocks that could return 15-60% over 1-year

RBL Bank is likely to see improving return profile over the next couple of years, due to improving advances & loan mix, higher CASA, lower cost ratios and improving asset quality.

  

The market is continuing to correct and consolidate after hitting record highs last week dragged by concerns like weak rupee and higher crude prices, which may impact the country's current account deficit and economic growth.

The Nifty has so farlost more than 200 points and the Sensex around 700 points from their record highs of 11,760.20 and 38,989.65, respectively, hit on August 29.

Experts suggest that the correction was due as the indices had rallied more than 10 percent year-to-date.

Crude oil prices have rallied nearly 23 percent year-to-date to USD 79 a barrel since August 15, while Indian rupee has fallen nearly 12 percent year-to-date against the US dollar.

The ongoing depreciation has room till 73, but the journey till there is less likely to be steep because of the ongoing trade war tensions, and a higher likelihood of only a gradual US rate hike will ensure that we may not have any runaway rally in US dollar or weakness in rupee.

RBL Bank: Buy | Target: Rs 739 | Return: 18%

RBL Bank (one of the fastest growing private banks) is likely to see improving return profile over the next couple of years, due to improving advances & loan mix, higher CASA, lower cost ratios and improving asset quality.

We expect the bank to report industry-leading loan CAGR of around 31.5 percent over FY18-20E. We forecast revenue and PAT CAGR of 27.5 percent and 36.8 percent, respectively, over FY18-20E.

We forecast return on assets (RoA) and return on equity (RoE) will increase by 24 bps and 317 bps to 1.4 percent and 14.6 percent, respectively, over FY18-20E. Considering the multiple levers, we value the stock at 3.6x FY20E P/ABV to arrive at the 12-months target price of Rs 739.

Karur Vysya Bank: Buy | Target: Rs 116 | Return: 24%

Karur Vysya Bank will benefit from its digital banking initiative, asset quality improvement, and advances growth. Further, improving loan mix, higher CASA, lower cost ratios to also support its return profile.

We forecast its RoA & RoE to increase by 48bps and 540bps to 1 percent and 11.5 percent, respectively, over FY18-20E. KVB is currently trading at around 1.5x FY20E P/ABV, which is attractive from a risk-reward point of view.

Reduction in stressed asset formation and improvement in core profitability would drive re-rating of the stock. We forecast its revenue and profit to register 14.1 percent and 50.9 percent CAGR over FY18-20E, respectively.

Considering the multiple levers, we value the bank at 1.8x FY20E P/ABV, to arrive at the 12-month target price of Rs 116.

City Union Bank: Buy | Target: Rs 235 | Return: 20%

City Union Bank will benefit from its increasing loan book led by better traction in MSME and retail loan book segments. Its focus on lower slippages and higher recovery will lead to declining credit cost over the next couple of years.

In addition, focus on high yielding products, higher CASA & CD ratio and lower cost ratios to also support its return profile.

We forecast its RoA & RoE to increase by 7bps and 13bps to 1.64 percent and 15.4 percent respectively over FY18-20E. Considering multiple levers, we assign 2.8x on FY20E P/ABV to arrive at target price of Rs 235.

Kalpataru Power Transmission: Buy | Target: Rs 451 | Return: 23%

KPT's order book at Rs 13,700 crore and L1 status in Rs 2,340 crore order provides strong revenue visibility (over 2 years) in standalone business.

Traction in international transmission & distribution (Bangladesh, Sri Lanka etc) and railways (Africa & CIS regions) will lead to sales / PAT CAGR of 15.5 percent / 18.5 percent over FY18-20E.

We value standalone EPC business at RS 384 per share; BOOT assets at 1xBV at Rs 14 per share; JMC at Rs 39 per share; SSLL at Rs 2 per share, 30 percent holding company discount on each and Rs 12 per share for real estate business. We recommend Buy with a SOTP based target price of Rs 451 per share.

Prabhat Dairy: Buy | Target: Rs 195 | Return: 25%

Prabhat Dairy is a Maharashtra based private dairy company (milk processing capacity of 1.1 million litres per day, around 70 percent direct sourcing) with a strong B2B presence. It sells fresh cow milk and value added products under its flagship brand Prabhat and Volup (icecream).

Prabhat is targeting to expand its reach to 0.2 million retail outlets by FY20 (0.1 million in FY18) driving strong growth in B2C business from a low base and increase the segment's sales contribution to 50 percent from the current 30 percent, in the next 2-3 years.

We estimate revenue and PAT CAGR of 12 percent and 32 percent respectively over FY18-20E owing to its strong B2B presence, increasing share of B2C business, and margin improvement (led by operating leverage). We recommend Buy with target price of Rs 195.

Eveready Industries: Buy | Target: Rs 22% | Return: 22%

Eveready's revenue mix is shifting from batteries & flashlights (82 percent of revenues in FY14 to 64 percent in FY18; 58 percent in FY20E) towards lighting and appliances (12 percent in FY14 to 31 percent in FY18; 34 percent in FY20E).

Entry into confectionaries will add Rs 70 crore to cumulative topline over FY18-20E.

Implementation of BIS compliance for dry cell batteries starting October 2018 will reduce dumping of cheap Chinese batteries, pushing volumes for domestic companies.

Eveready has around Rs 100 crore worth of land bank which can be monetised to either pay off long term debt (Rs 120 crore) or take care of other contingencies, if any.

We expect company to post consolidated sales and PAT CAGR of 11 percent and 52 percent respectively over FY18-20E (PAT CAGR is optically high due to 43 percent drop in FY18 PAT).

Abbott India: Buy | Target: Rs 9,639 | Return: 15%

Abbott's branded business and 21 product launches led to revenue growth of 13.6 percent YoY in FY18 versus Indian pharma industry growth of 5.2 percent. Abbott expects to introduce 100+ products over next five years which is expected to provide further growth opportunities.

Due to the stable branded business and cash rich balance sheet, company enjoys ROE of 20 percent plus and ROIC of 50 percent plus. We expect revenue / PAT CAGR of 16 percent / 21 percent over FY18-20E. We recommend Buy on Abbott India with target price of Rs 9,639.

Sanofi India: Buy | Target: Rs 7,446 | Return: 14%

Sanofi has brands like Lantus, Combiflam, Amaryl and Allegra which feature amongst the top 100 brands in Indian pharma industry. Sanofi's insulin portfolio has been growing in double digits due to growth in its diabetes brands. We are positive on Sanofi's business due to the increase in lifestyle related diseases in India.

We project Sanofi's revenue / PAT CAGR of 15 percent / 17 percent over CY18-20 due to strong brand equity and favourable industry dynamics. We recommend Buy on Sanofi India with target price of Rs 7,446.

HG Infra Engineering: Buy | Target: Rs 386 | Return: 60%

HG Infra Engineering is an EPC company with focus on highways, roads and bridges in addition to civil works and water supply projects. It has been a sub-contractor for established players like L&T, Tata Projects and IRB Infra. Strong and persistent execution has helped it transform from a sub-contractor to a frontline EPC bidder.

HG has grown to pre-qualify for projects up to Rs 1,120/1,600 crore in EPC/HAM respectively. The transformation is visible, with HG quadrupling its revenues over FY13-18.

With a further pickup in NHAI orders in second half of FY19E, EPC players will only add to their FY18E book/bill of around 3.3x. This should address longevity concerns on their earnings up-cycle. For HG, EPS should rise to Rs 24.7 per share in FY20E.

HG has a firm grip over working capital (and hence, debt) and should deliver high RoEs more than 20 percent. We initiate coverage with a target price of Rs 386 (valuing core EPC operations at 15x FY20E EPS).

Khadim India: Buy | Target: Rs 976 | Return: 29%

We initiated coverage on Khadim India with a Buy rating and a target price of Rs 976 based on 16x FY20e EV/EBITDA. We believe it is best positioned to benefit from the domestic footwear industry shifting towards branded footwear.

We anticipate it reporting a 19 percent revenue CAGR over FY18-20 driven respectively by its dual strategy of expanding its retail network (a 16 percent revenue CAGR) and its distribution channel (a 25 percent revenue CAGR).

Driven by operating leverage kicking in and lower interest costs we expect Khadim to deliver a 28 percent PAT CAGR over FY18-20. At the CMP, the stock trades at an EV/EBITDA of 13x FY20e, a 35 percent discount to its peers (such as Bata and Relaxo).

MORE WILL UPDATE SOON!!

Don't see huge fall in market as fundamentals are improving; FMCG valuations stretched

We Advise to maintain right balance in portfolio given market valuations and likely interest rate hike.

  

The Nifty 50 has corrected about 300 points from its record high of 11,760 (touched on August 28), driven by sharp depreciation in the rupee following currency war in emerging markets and rising crude oil prices, which both could hit current account deficit of the country.

Yes there could be global pressure on the market, which could lead to mild correction but we don't see big fall as fundamentals are improving and a lot of companies in Nifty50 already benefitted from rupee fall.

We feels the fall in rupee is a bit of catch-up to other emerging market currencies like Argentina peso, Turkish lira, etc. but the market has done very well despite a sharp fall in the currency. The fall in rupee could also be because of likely increase in interest rates, which was on expected lines.

He said if RBI goes for interest rate hike then there could be pressure on high leverage companies like infra, select financials and NBFCs which could see slight weakness.

Autos

In two-wheeler space, Patil said volume growth is fairly good on pick up in rural demand, especially in scooters segment. In fact some of the players which lost market share earlier want to gain it again which impacted their margin, he added.

Volume growth should be fairly good in car segment and there won't be an impact on the margin front, he said.

Commercial vehicle segment surprised positively. Increase in truck loading could see some fall in demand but the segment as a whole should report 10-15 percent growth this year and new emission norms could support growth next year.

FMCG

The Nifty FMCG index, which comprises of companies like HUL, Marico, Britannia, ITC, Dabur etc, fell 4 percent in last one week.

Consumption companies commentary is very good but valuations are stretched, which the market is realising now.

We see some amount of derating in FMCG stocks on assumption of interest rate rising and high valuations but the structural story is still intact. "Correction from here on could show attractive valuations. As earnings are expected to be steady, any fall of around 10-15 percent from here on could be an opportunity for value buying.

Defence

New pricing policy related to the margin on defence orders could drive these stocks down a bit but fundamentally sound companies with strong productivity will perform better, he believes.

Overall in the PSU space, a lot of companies derated recently which seems to be enough opportunity to look at the space again. Good business dynamics provide an opportunity for long-term.

MORE WILL UPDATE SOON!!

Stock recommendation Tata Sponge Iron Ltd.

 Technical Analysis :

The share price of Tata Sponge has bounced back from the lower band of consolidation ( 900) and the stock has undergone a base building process over past eight months.

The stock witnessed a sturdy rally during November 2016 to January 2018 (from  490-1240). Since then, it entered a secondary phase of consolidation ( 900-1240).

Currently, the stock has resolved out of last five weeks consolidation, suggesting acceleration of positive momentum, auguring well for the stock to unfold the next leg of the rally.

Fundamental Analysis :

Healthy domestic steel demand growth has led to a positive impact on realizations of sponge iron players where, Tata Sponge, being a leading domestic sponge iron player, witnessed a healthy uptick in its realizations over the last two to three years.

The company also has access to captive power plants. Power is generated through these captive power plants through waste heat generated during sponge iron manufacturing. This aids in keeping a check on power costs, thereby aiding overall EBITDA margins.

In FY18, optimum capacity utilization levels and healthy realizations have also had a positive impact on the operating margins of the company.



   

MORE WILL UPDATE SOON!!