What the first-quarter numbers so far tell us: Rural India is recovering

Consumption sectors (FMCG, durables, autos), though on a soft base, post noticeable volume growth for a consecutive quarter.

  

While optically, numbers look interesting, investors should keep in mind that large number of manufacturing companies witnessed pre-GST destocking in the run-up to the GST deadline (July 1) in the year-ago quarter. Hence, part of upbeat topline growth is contributed by the soft base.

Further, as a caveat, while analysing these numbers, investors should consider that YoY numbers are not strictly comparable due to GST accounting impact, which lowers the reported topline numbers in the post GST quarters. For instance, the FMCG sector’s reported sales growth numbers were mediocre but the comparable growth has been in lower double digit.

So as a way around, for a comparable assessment, we looked at the sequential growth numbers for the last three post-GST quarters and found that cumulative sequential sales, operating profit and net profit growth numbers have been 10, 14 and 15 percent respectively. These suggest a steady recovery. However, sales numbers for the last two quarters have been at par with operating profit, which means the cycle of margin improvement has plateaued.

Our qualitative takeaways from earnings

Early results from the FMCG companies reflect upon steady recovery in volume and earnings, albeit on a weaker base, as trade conditions have nearly normalised. While consumer offtake has been strong for general trade and modern trade channels, CSD (canteen stores department) has been a laggard. Topline growth has been led by the sector leader Hindustan Unilever (HUL), which reported third consecutive quarterly result of double digit volume growth.

Even more noteworthy has been the higher growth pace for the rural areas. However, HUL’s management is still shy of calling it a trend. Bajaj Corp updated that rural offtake for their flagship product, Almond Drop hair oil, has been 30 percent higher than urban in both volume and value terms.

While improved rural sentiments aided by recent policy measures and positive fall out of monsoon season augurs well for the sector, key risk factors to note from the sector result are increased competitive intensity and crude linked raw material prices.

Majority of IT companies had a great start to the new fiscal. Albeit a quarter of wage hike and visa costs, the favourable currency movement (rupee depreciation) and efficiency improvement restricted the decline in operating profit margin. The outlook/guidance for the future shared by these companies looks extremely strong as many of them are actively participating in the transformation agenda of the enterprises with a strong digital offering. The share of digital in their business is inching up and this business is commanding a higher margin and growing much faster than the company’s average.

Results reported from two auto companies, Ashok Leyland and Bajaj Auto, indicate that demand in domestic market continues to be robust across all segments: 2W (two-wheeler), 3W (three-wheeler) and commercial vehicle (CV). Export markets are also looking very robust in terms demand. However, there seems to be huge competition in domestic 2W and CV markets forcing companies to enter into a price war, which in turn hurting the operating profitability. Further, the companies continue to face pressure from the significant rise in raw material (RM) prices.

The retail focused private banks reported in line performance on expected lines. Loan growth has been healthy for them, as well. The upward revision in MCLR (marginal cost based lending) is beginning to impact lending yields positively. A large bank mentioned about pricing power coming back to lenders. However, the same lender cautioned about the stress in the SME segment which is perhaps borne out by the weak number reported by a mid-sized SME focused bank. One of the mid-sized corporate lender surprised positively on asset quality after reporting extreme stress in previous quarter that had an industry wide impact due to RBI’s guidelines on bad debt recognition. The weakness in garnering CASA (low cost deposits) was a trend visible across banks and points to firming up of rates in the system.

An exception to this trend was Bandhan Bank. The youngest private bank posted CASA growth of 84 percent YoY taking its CASA ratio to 35 percent, albeit on a lower base. The bank mainly in micro lending posted stellar performance indicating buoyant conditions for those operating at the bottom of the pyramid. One of the largest consumer lending NBFC, Bajaj Finance, continued to reap benefits of its two pronged-strategy of focusing on urban aspirational mass as well growing rural demand. Competition is heating up in the retail lending space. However, since the credit pie is growing driven by rising penetration and increasing average loan size, there is enough space for growth.

From the agrochemical stable, Rallis reported its numbers last week. The pressure on account of strained supply from China continued in Q1, pushing up the raw material prices. With limited pricing power and high competition there was continued difficulty to pass on the high costs to consumers and margins were impacted, despite a healthy growth in topline.

Within the materials sector, metals companies which have reported results so far have seen benefits of higher metals prices and better demand, thereby reporting strong growth in revenues. Companies have also reported better realisation. Increase in demand has resulted in higher volumes and impacted margins positively on account of operating leverage. Despite higher input cost (coal and others) companies like Tata Sponge and Hindustan Zinc reported record production led by higher demand from the user industries.

Another sub-segment from the material sector and among the favourite sector for last fiscal, chemicals in its initial set of results appeared struggling due to plant shutdowns (Bhansali Engineering & Goa Carbon) and elevated input prices. Having said that the key differentiator in this heterogeneous sector remains the end market prospects. Improving realization for the products like Calcined petroleum coke (Goa Carbon) provides strong growth prospects for aluminium companies.

In the engineering space, companies like ABB and few others that have reported results have delivered better than expected growth in sales led by recovery in demand. Segments like railways, renewables, construction, power T&D have been driving the growth while industrial continues to be an area of concern. Also, exports are seen to be improving led by recovery in global demand and depreciating rupee.

In case of cement sector, prices continue to remain subdued despite a strong volume growth aided by pick-up in infrastructure activities. Amid rising cost pressures and increased competitive intensity, cement companies are laying more emphasis on optimising cost structure. Talking about individual companies, UltraTech’s increasing rural segment contribution has been noteworthy and it has improved to around 40 percent from 35-36 percent a few quarters back.

Among building materials, Havells management has indicated that real estate sector has seen a stabilisation of demand post the introduction of GST and RERA last year. However, a strong pick-up in real estate will take some more time.

MORE WILL UPDATE SOON!!

Life insurers' fixed income assets rise 46% in 3 fiscal years, equity assets up 29%

Data showed that at the end of FY18, life insurers held equity assets worth Rs 8.12 lakh crore, and fixed income assets worth Rs 24.5 lakh crore.

 

From FY15 to FY18, fixed income assets and equity assets of life insurance companies rose 46 percent and 29 percent, respectively, according to data sourced from the Life Insurance Council.

The data showed that at the end of FY18, life insurers had equity assets worth Rs 8.12 lakh crore (at market value), and fixed income assets worth Rs 24.5 lakh crore.

The total investment assets of life insurers at the end of FY18 stood at Rs 33.13 lakh crore, around 11 percent higher than at the end of the previous fiscal year.

Infrastructure assets held by life insurers stood at Rs 3.76 lakh crore, 8.5 percent higher than at the end of the previous year. In comparison, the capital that they deployed in the life insurance sector rose merely 3.5 percent to Rs 36,582 crore, as on March 31 this year.

The growth in these insurers' equity portfolio is a reflection of the growth witnessed by the domestic stock market. The benchmark Sensex index rose to 32,968.68 at the end of FY18, from 27957.49 at the end of FY15.

The distribution architecture, comprising of agents and new branches, remained largely unchanged. In FY18, only 156 new branches were added by life insurance companies.

One good news is that attrition of individual agents was kept under check. The number of individual agents stood at 2.08 million at the end of FY18, only 5,851 agents less than at the end of the previous year.

On an average, the life insurance industry loses 20,000-25,000 agents every year, primarily due to low commissions.

A reason for the lower reduction in the number of agents could be better commission rates. Overall, commission-related expenses grew 14.5 percent year on year to Rs 25,309 crore in FY18.

The data also showed that the renewals of linked products (Ulips) were higher than that of traditional products. Renewal premium for linked products rose 22.3 percent in FY18 to Rs 38,706 crore, while that of non-linked products increased 6.7 percent to Rs 2.25 lakh crore.

In all, the life insurance industry employed 265,727 direct employees, as at the end of FY18, compared to 249,794 people at the end of March 2017. Over and above this are individual agents and other distribution partners.

MORE WILL UPDATE SOON!!

Sensex hits record high even as some stocks sink to 52-week lows: Here's what to do

Experts said investors should avoid taking leverage bets and pick stocks just because it has corrected in double-digits in the recent past.

 

The Sensex hit a record high of 36,749.69 on Monday but traders are not rejoicing because more than 300 stocks on the BSE hit a fresh 52-week low. When markets scale fresh peaks, one ought to have seen more stocks hitting fresh 52-weeks highs. However, in the current scenario, it is the other way around.

Stocks which hit fresh 52-week lows on the BSE on Monday include: Hero MotoCorp, ICRA, Bajaj Auto, Swaraj Engines, Apollo Hospitals Enterprises, BEML, JK Cement and Sundaram Finance.

 

If you are stuck with stocks that are hitting fresh 52-week lows on a daily basis then your portfolio might need a re-look. Experts said investors should avoid taking leverage bets and pick stocks just because it has corrected in double-digits in the recent past. The emphasis should be given on quality.

Investor needs to very selective in the current phase and only add quality companies where valuations are reasonable. “Investors are advised to review their portfolio and stay invested only in quality companies. We favour consumer companies, private sector banks (HDFC Bank, IndusInd Bank)/NBFCs (Bajaj Finserv), auto/auto-ancillary companies (Rico Auto, JK Tyre & Industries and Apollo Tyres) and select IT services stocks (Infosys, Tata Consultancy Services, HCL Technologies and Persistent Systems).

We advise investors to switch on rallies into other outperformers instead of waiting by. Many mid and smallcaps still have over 25 percent downside visible.

Where is the market headed?

In the last six months, the CNX Midcap and Smallcap indices have dropped 15-22 percent, whereas the benchmark indices are sitting pretty with gains of 3-6 percent. Midcaps have seen severe selling pressure and many stocks which had been market favourites in 2017 have lost close to 30-40 percent of their value in the last few months.

This, experts said, indicate a twin paced market behaviour. “It looks like investors are moving away from high beta stocks in the mid and smallcap space to more fundamentally driven largecaps.” But analysts’ are hopeful that the current divergence between the broader market and largecaps might not exit for long.

There is no denying that new highs are being driven by a handful of scrips. It is important to understand that such a divergent environment may not prevail for a long time if a prolonged uptrend in indices picks up once again beyond new lifetime highs.

The correction is healthy as the excesses of last year one-way rally are getting sorted out. Speculative stocks that ride the market momentum are hardest hit during the volatile phase. It looks like the market is re-evaluating excesses of FY18 and speculative stocks that ride the market momentum are hardest hit during the volatile phase. Market focus has shifted from chasing alpha to more fundamental risk aversion for the time being.

MORE WILL UPDATE SOON!!

5 largecaps to buy ahead of July expiry which may return 6-17%

If  Nifty sustains above 11,080 levels, one can expect the index to test its all-time high of 11,172 and then 11,230 levels.

 

The Nifty rallied in the latter half of Monday to close at 11,085, up 0.68 percent. The weekend cut in the Goods & Services Tax in over 100 items and recovery in the rupee-dollar boosted market sentiment.

The breadth was positive with a 2:1 ratio on the NSE. The BSE Mid and Smallcap indices outperformed with a gain of 1.3 percent and 0.9 percent for the day. The Nifty has been trading in a range of 10,920-11,080 for the last eight sessions.

In Monday’s session, the index managed to close above this range giving a breakout on the upside. If it sustains above 11,080 levels, one can expect the index to test its all-time high of 11,172 and then 11,230 levels.

On the downside, immediate support is seen at 11,000 and 10,920 levels. In Nifty options, maximum open interest (OI) is at 11,000 put and significant call writing was seen in 11,000 and 11,100 strikes suggesting that the market has support at lower levels.

Here is a list of 5 stocks that could return 6-17% in the next 1-2 months:

Maruti Suzuki India: Buy| CMP: Rs 9,701| Stop Loss: Rs 9,400| Target: Rs 10,700| Return 10.3%

The stock is in major long-term uptrend forming higher tops and higher bottoms. In the month December 2017 stock hit high of 9996 and then corrected down to 8255 levels. Looking at weekly chart stock has formed a double bottom pattern.

The rally from lower levels has been on above average volumes and long bullish candles indicating buying participation in the stock. For the last couple of weeks, the stock had been trading in a narrow range and formed bullish pole and flag pattern above the double bottom breakout level.

On Monday, the stock witnessed strong momentum and good volumes given a breakout from flag pattern. Daily MACD line has given positive crossover with its average suggesting start of a fresh uptrend in the stock.

Thus, the stock can be bought at current levels and on dips to 9600 with a stop loss below 9400 for a target of 10500 levels.

Endurance Technologies: Buy| CMP: Rs 1,305| Stop Loss: Rs 1,250| Target: Rs 1,450| Return 11%

The stock was long-term uptrend forming higher tops and higher bottoms from 518 in November 2016 to 1400 in January 2018. Since then the stock has been trading in a range and consolidating its gains.

It has formed a symmetrical triangle pattern which is generally expected to give in the direction of the previous trend. The last couple of sessions have witnessed bounce back from 200 day moving average with price momentum and high volumes.

Price has given breakout from Bollinger band on the upside with the expansion of band suggesting a continuation of the trend in the direction of the breakout. MACD line on the daily chart has given positive crossover with its average and on weekly chart turning up from equilibrium levels.

Thus, the stock can be bought at current levels and on dips to 1290 with a stop loss below 1250 for a target of 1450 levels.

Page Industries: Buy| CMP: Rs 28,514| Stop Loss: Rs 27,500| Target: Rs 30,300| Return 6.2%

The stock is in uptrend forming higher tops and higher bottoms on the daily chart for last six months. Rallies have been by good volumes while declines have been on below-average volumes indicating buying in the stock and market participants holding onto the stock.

On the daily chart, 20-days moving average is acting as support and resistance for the stock. From the recent high of 29,676 levels, the stock has again taken support at 20DMA. Thus, it can be bought at current levels and on dips to 28300 with a stop loss below 27500 for a target of 30300 levels.

Voltas: Buy| CMP: Rs 574| Stop Loss: Rs 550| Target: Rs 640| Return 11.5%

The stock had seen a sharp decline from high of 665 in the month of April this year to a low of 493. Low was formed on high volumes and long ranged bar suggesting value buying coming at lower levels.

The stock has formed a rounding bottom pattern between 560 and 493 odd levels on the short-term daily chart. Price has given breakout from Bollinger band on the upside with the expansion of band suggesting a continuation of the trend in the direction of the breakout.

Daily MACD has moved above neutral level of zero suggesting bottoming process is complete and the stock likely to see the start of a new uptrend. Thus, the stock can be bought at current levels and on dips to 570 with a stop loss below 550 for a target of 640 levels.

Pidilite Industries: Buy| CMP: Rs 1,050| Stop Loss: Rs 1,010| Target: Rs 1,190| Return 17%

The stock is in long-term uptrend forming tops and higher bottoms on the weekly chart. After touching high of 1195 in the month of May, stock corrected down to 1019 levels. Here price has taken support at 50% retracement of the rise from 845 to 1195.

Also, the price has taken support at 89-day exponential moving average and holding above it. Relative strength index has given positive crossover with its average on the daily chart.

Thus, the stock can be bought at current levels and on dips to 1040 with a stop loss below 1010 for a target of 1190 levels.

MORE WILL UPDATE SOON!!

Buy Indian Oil Corporation, target Rs 170

Indian Oil Corporation appears to have formed a strong base around Rs 150 where it is attracting huge buying interest as pointed out by long lower shadows on weekly charts.

        

After the recent correction from the highs of Rs 177, Indian Oil Corporation appears to have formed a strong base around Rs 150 where it is attracting huge buying interest as pointed out by long lower shadows on weekly charts.

Hence, sustaining above this level it can initially target Rs 170. A stop loss suggested for the trade is a close below Rs 154.

MORE WILL UPDATE SOON!!

Accumulate Havells India, target Rs 590

We feel traders shouldn’t miss this chance and accumulate fresh long in the range of Rs 555-560 for target of Rs 590.

 

After a strong up move from Rs 520 to Rs 580 levels, Havells India has retraced marginally. It has reached close to its price support zone placed around Rs 555, offering a fresh buying opportunity.

We feel traders shouldn’t miss this chance and accumulate fresh long in the range of Rs 555-560 for target of Rs 590. It closed at Rs 560.05 on July 16, 2018.

MORE WILL UPDATE SOON!!

Technical View: Nifty forms strong bullish candle; 11,080 next key level to watch

Option band signifies an immediate trading range in between 10,929 to 11,080 zones, experts said.

  

The Nifty50 recouped some of its previous day's losses to close the session above psychological 11,000-mark on Tuesday, forming strong bullish candle on the daily charts.

The rally was backed by oil & gas, banking & financials, metals and pharma stocks. All sectoral indices closed in the green except IT index which fell a percent.

The broader markets, which were badly hit in the previous session, also participated in the rally with Nifty Midcap index rising more than 2 percent.

The Nifty50 after opening higher at 10,939.65 wiped out early gains to hit an intraday low of 10,925.60, but managed to recoup those losses in morning trade itself and reclaimed psychological 11,000-mark in later part of the session. The index hit an intraday high of 11,018.50, before closing 71.10 points higher at 11,008.

The closing above 11,000-mark is a good thing but to maintain that momentum, the index has to close above 11,080 levels and then only it can be able to march towards its earlier life time high of 11,171 seen in January, experts said.

"It was heartening to see Nifty50 strongly recoiling after testing erstwhile breakout point present around 10,930 levels before bulls signed off the session in style with a strong bullish candle.

He said on the back drop of today’s move it appears that the last three sessions of corrective consolidation phase is a mere pause in the ongoing strong uptrend as advance decline ratio also tilted in favour of bulls during the course of the day.

Momentum in the indices shall pick up further on a close above 11,080 which shall also confirm the end of recent corrective swing there by paving the way for new life time highs which may not be difficult as Bank Nifty which was looking relatively stronger registered a bullish engulfing formation thereby erasing Monday's losses.

Hence, traders are advised to create fresh long positions with a stop below 10,925 on closing basis and look for bigger targets around 11,171.

Nifty is forming wave extension on the upside on the daily chart. "This means that the bulls are likely to push the index towards north.

India VIX fell by 0.52 percent to 12.88 levels.

On the option front, maximum Put open interest (OI) was seen at 10,600 followed by 10,800 strike while maximum Call OI was at 11,000 followed by 11,200 and 11,100 strikes. Significant Put writing was seen at all the strikes from 10,800 to 11,000 while Call unwinding was seen at 11,000 strike.

Option band signifies an immediate trading range in between 10,929 to 11,080 zones, experts suggest.

Nifty index managed to hold immediate support of 10,925-10,929 zones and recovered towards previous day’s high of 11,020 zones.

It retested previous breakout zones and a hold above 11,000 could extend its move towards 11,080 then 11,171 levels while on the downside supports are seen at 10,929 zones.

Bank Nifty formed a Bullish Belt Hold candle on daily scale and managed to reclaim above 27,000 zones.

Now it has to continue to hold above 26,750 zones to extend its move towards 27,165 then 27,400 levels.

MORE WILL UPDATE SOON!!

Nifty could rally towards 11,000 after some consolidation in July series

With the start of the results season in the upcoming week, the market will become more stock-specific.

 

During the week, Nifty found support near highest Put base of 10,600 and staged a recovery as well. In fact, it has ended above 10,700 for the sixth consecutive week. The index has shown tremendous resilience, given the rupee depreciation from 67 to 69/USD during this period.

A weaker rupee has pushed up stocks in technology and pharmaceuticals space. Also, the buyback offer by Tata Consultancy Services (TCS) also kept the stock at a higher band.

As such, volatility has been lower, thus supporting the positive bias for Nifty. With the start of the results season in the upcoming week, the market will become more stock-specific.

The highest Call base for July series is placed at 11,000 strike, which means after some consolidation the Nifty can recover towards 11,000.

 

Bank Nifty: 26,200 remains a crucial support for upside to continue

The index has continued to hold 26,200 since June. Market participants respected the same levels in July as well from where the index rallied above 26,500.

Private sector banks continued to outshine, while midcap stocks such as Yes Bank and IndusInd Bank also saw a fresh upmove.

As US imposed sanctions of USD 34 billion on Chinese imports, trade war fears further intensified.

However, most of these cues are factored in and there is no panic which was seen last week. The 26,200 Put continued to see an addition in the past few weekly expiry.

Positions have also been formed in 26,400 Put which can be seen as an intermediate support for the index. On the Call front, OI is well distributed in 26,700 to 27,000 strikes that can be a potential target on the upside.

Looking at the increasing discount on the index, we feel a close above 26,700 is likely to trigger short covering. The price ratio of Bank Nifty/Nifty remained near 2.46 levels.

We feel the ratio is likely to improve and the outperformance in the banking stocks can be seen once the index manages to end above 26,700

Emerging markets cautious amid higher crude oil prices:

Emerging markets (EM) continued to remain under pressure as trade war concerns continue to remain an overhang. MSCI EM index tested almost one-year lows weighed down by weakness in EM currencies triggered by outflows.

Although US FOMC minutes were cautious about recent global trade friction, they continued to envisage strength in the US economy.

The Fed is expected to increase interest rates in September while probability is building up for a fourth rate hike in December 2018.

Emerging markets saw mixed flows in equities during the week. Indonesia (USD 65 million), Malaysia (USD 77 million), Taiwan (USD 705 million) and Thailand (USD 266 million) witnessed outflows.

In the upcoming week, market participants would brace themselves for a bout of volatility if the US moves further to impose tariffs on USD 200 billion of Chinese imports as announced earlier by US President.

We could see further pressure on emerging markets as well as currencies if the trade friction escalates to the next level of additional tariffs impositions.

 

MORE WILL UPDATE SOON!!

Rs 1.2 lakh crore boost for rural income! These 11 stocks are likely to benefit the most from MSP hike

The MSP hikes should impact 310-330 mn tonnes of agri production, 25 percent of agriculture’s GDP contribution and 4.5 percent of GDP.

 

The much-awaited decision on minimum support price (MSP) was finally made by the government this week. Rural income is likely to get a boost but at a cost of up to 20 bps impact on the fiscal deficit, according to analysts from top brokerages.

The government announced hikes of 4-53 percent in the minimum support prices (MSP) for summer crops. While details on the implementation of the MSP hike are awaited, government intentions are clearly supportive of rural incomes, CLSA said in a note.

The MSP hikes should impact 310-330 mn tonnes of agri production, 25 percent of agriculture’s GDP contribution and 4.5 percent of GDP. In nominal terms, as the MSP gets implemented, the positive impact on the rural income should be Rs 1.2 lakh crore.

The government, as of now, estimates the cost of these hikes at Rs150 bn-300 bn (10-20bp of GDP) but the final number depends on how the MSPs are implemented, highlighted the CLSA note.

The government approved the hike in MSP of all Kharif crops to 1.5x of the cost of production. Consequently, MSP growth ranged from 3.7 percent (for Urad) to 52.5 percent (for Ragi), implying production-weighted average growth of 15.8 percent in FY19 compared to 7.1 percent in FY18.

This is the fourth highest growth in MSP during the past two decades, with higher growth in FY08, FY09 and FY13, interestingly, all were closer to general elections.

Whether or not higher MSPs boost farmers’ income depends entirely on better reach and higher procurement of various procurement agencies of the center and states. However, it is sentiment-positive for the rural consumption.

Who would be the key beneficiaries?

Stocks in sectors related to consumption, autos, banks, NBFCs, are likely to benefit the most from the hike in MSP, suggest experts.

CLSA’s favourite rural plays are M&M, ITC, Dabur, Emami and Crompton Consumer. The rural largesse will, however, adversely impact the fiscal deficit (10-20bp) and inflation (30-50bp), raising macro concerns.

 

Rural consumption is picking up and urban consumption has been doing well too. Sectors like QSR and processed foods and discretionary segments like retail, jewellery, and apparel have shown a good pick-up in consumption already.

Autos, FMCG, NBFC and select Mid-caps are the natural beneficiaries of rural consumption pick-up, in our view. After the rally in last one year, valuations in the consumption pack are rich,” added the Motilal Oswal note. Key rural beneficiaries from the brokerage firm include names like Maruti, Mahindra & Mahindra, Hindustan Unilever, Britannia, Emami, MMFS, Coromandel.

However, given the strong earnings visibility, underlying macro triggers and quality management pedigree, we expect them to remain in focus in a volatile broader market environment.

MORE WILL UPDATE SOON!!

Good quality small & mid-cap stocks can be bought for higher returns

The Nifty made a V-shaped recovery in the past month after a panic-led fall, indicating that the market has stabilized in the immediate term.

 

Small and midcap indices have corrected by around 25-30 percent, while some stocks have plunged over 50 percent this year. But they seem to be nearing their bottom as negative sentiment has caused a deep correction in these stocks.

The Nifty on a weekly basis closed with gains of 0.54 percent. 

The Nifty made a V-shaped recovery in the past month after a panic-led fall, indicating that the market has stabilised and bottomed out in the immediate term.

On the weekly chart, correction phase seems to be tighter and a sideways movement is expected. The market is expected to be trading in a range-bound manner unless trade war fears and macro (issues) escalate further.

Bank Nifty seems to be trading in choppy waters, but has maintained a strong support at 26,000 levels. Since June, Bank Nifty has been trading in a tight range and we expect a sideways movement in the short term.

As far as other indices are concerned, small and midcap indices have corrected by around 25-30 percent and some stocks by over 50 percent. They seem to be nearing their bottom as negative sentiment has caused a deep correction in these stocks.

Good quality small and mid-cap stocks can be bought for higher returns in the portfolio.

Plenty of stocks hit fresh 52-week lows in July compared the ones which hit 52-week highs. The absence of buying in broader markets is likely to cap upside for markets.

Markets have shown high volatility in the past few months due to weakening rupee, high crude oil prices, trade war woes, and political ambiguity.

When markets are facing this kind of volatility, it is best to be patient and hold the stock instead of following the herd and selling them when the prices have fallen.

The stocks hitting lows need not necessarily be bad, but an unemotional assessment of quality check has to be done before taking any decision. If nothing has changed fundamentally, then they should be held on and added more in the portfolio.

Top 3-5 positional calls which could give handsome returns to investors in next 1 month?

Yes Bank seems to be a good positional call as it has had the longest consolidation and has taken support at 200-DMA.  ACC has decisively reversed the corrective fall and is likely to move higher.

Buy on dips should be a strategy for this stock. Endurance Technologies, which has made a crossover with its 20- and 50-DMA, is indicating a good positional buy. It has consolidated and stayed above 200-DMA in this corrective phase.​

MORE WILL UPDATE SOON!!

Portfolio check: These top stocks could return 21-115% in 1 year

After hitting record highs in late January, followed by sharp sell-off, the market has been consolidating and trying very hard to move towards that all-time high.

 

The Sensex rallied 4 percent in the first half of 2018, but the broader market corrected sharply with the Nifty Midcap index falling 14 percent, especially after the strong 48 percent outperformance in 2017.

Experts said some mid, small and largecaps are trading at attractive valuations. We expect stock-specific movement in largecaps to continue to support the market. But mid and smallcaps are likely to take more time to settle.

Considering the current rangebound trade, they feel the market may be waiting for earnings to pick up from the second half of FY19.

Big reform decisions taken by the government, normal monsoon resulting in a likely increase in consumption and an earnings recovery continue to support the market, but global trade concerns, volatility in crude oil prices, weakening rupee versus the dollar and an increase in the cost of capital are headwinds to the rally.

In the backdrop of higher fuel prices, increase in interest rates and a weakening rupee-dollar scenario, we are of the view that market may trade in a range and is unlikely to witness any strong appreciation in the next 6-8 months.

Invest in quality stocks, which are less vulnerable to macro concerns and have healthy cash flow visibility. Considering the likely pick-up in rural consumption, higher utilisation and recent reforms, he is hopeful that corporate earnings will witness double-digit growth in coming quarters.

Here is the list of top stocks that could return 21-115 percent in a one-year period:

Larsen & Toubro: Buy | Target - Rs 1,540 | Return - 23%

L&T enjoys several levers across its business/geographical segments. It has emerged as the E&C partner of choice in India, which provides a robust foundation to capitalise on the next leg of investment cycle.

Under its new five-year strategic plan to FY21, L&T aims to: (a) grow sales at 12-15 percent CAGR to reach Rs 2 lakh crore by 2021, (b) expand margins to 11.2 percent, up 120bp over FY16, driven by higher profitability in key manufacturing verticals (power, process, forgings and Katupalli yard) and hydrocarbons, (c) unlock value via asset sales to drive RoE to 18 percent from 12 percent in FY16 and (d) reduce working capital to 18 percent of sales from 20 percent currently.

Manufacturing businesses (like Shipyard, Power BTG, and Forgings) also offer interesting possibilities over the longer term. Many of these businesses are difficult to replicate, and L&T is strongly positioned as a dominant player.

We maintain Buy with an SOTP-based target price of Rs 1,540 (E&C business at 22x FY20E EPS, to which we add Rs 520 for subsidiaries). The stock trades at 19x/15x its standalone business (ex. subsidiaries) on FY19/FY20 EPS versus its historical average of 22x. Key risks to the rating include (a) a sharp slowdown in government spending and (b) a sharp fall in oil prices in the Middle East.

Tata Steel: Buy | Target - Rs 700 | Return - 25%

Tata Steel and ThyssenKrupp AG have signed a definitive agreement to combine their European steel businesses in a 50:50 joint venture to be named ThyssenKrupp Tata Steel BV headquartered at Amsterdam, Netherlands.

The formation of the joint venture paves the way to offload significant debt from Tata Steel's consolidated balance sheet to the new joint venture. The deleveraging of balance sheet would aid the management to focus more on the profitable domestic business and pursue organic and inorganic growth prospects.

We continue to remain positive on the domestic steel consumption story driven by increased government expenditure/policies and supportive macros. We like Tata Steel given the integrated nature of domestic operations, which enables it to report higher EBITDA/tonne vis-à-vis its domestic peers.

Going forward, for Indian operations, we maintain our sales volume estimate of 12.5 MT for FY19E and 12.8 MT for FY20E with EBITDA/tonne estimate of Rs 13,250 per tonne for FY19E and Rs 14,000/tonne for FY20E.

For European operations, we model sales volume estimate of 10 MT and EBITDA/tonne estimate of $75/tonne for both FY19E and FY20E, respectively. We value the stock on an SOTP basis and maintain target price of Rs 700. We maintain Buy recommendation on the stock.

Tata Chemicals: Buy | Target - Rs 876 | Return - 27%

Tata Chemicals' specialty chemical (S&C) businesses includes salt, agri inputs, pulses, spices and nutritional solutions. Tata Chemicals has adopted a strategy for the next 3-5 years to focus on its S&C business and consumer business. Post exiting from fertilizer business, Tata Chemicals is planning to increase the contribution from S&C business to around 35 percent by FY20E, considering the current product portfolio.

It is exploring new avenue in FMCG sector, which is a high margin business with low working capital.

Tata Chemicals has reduced its debt through sale of investment in Tata Global Beverage, divestment of the fertilizer business and also through cash generated from its operations. Currently, it has a net cash position of Rs 1,02 crore while net consolidated debt is around around Rs 4,130 crore.

With global leader in soda ash and sodium bicarbonate, exiting from low margin fertiliser business, focus on specialty chemical and consumer business, exploring new avenue in FMCG sector with Tata Sampann and reduction of debt through sale of investment, we value Tata Chemicals at 7.00x FY20E EPS of Rs 125.20 to arrive at target price of Rs 876.

Exide Industries: Buy | Target - Rs 320 | Return - 25%

As the company is one of the largest leaders in the battery space, it is likely to get benefit, if the demand scenario improves. Moreover, it is also expected that cost reduction initiative and focus on profitable segment would drive the margins going forward.

Thus it is expected that the stock will see a price target of Rs 320 in 8 to 10 months time frame on a current P/E of 31.56x and FY19 (E) earnings of Rs 10.14.

Persistent Systems: Buy | Target - Rs 971 | Return - 21%

According to the management, the company expects an accelerated demand from enterprises to leverage digital ecosystems for innovation and growth. Its emerging technologies, transformational experience and continued progress with collaborations and acquisitions would give optimism for its growth going forward.

Moreover, a gradual improvement in utilization rate and better revenue growth in the non-linear business would support EBITDA margin. Thus, it is expected that the stock will see a price target of Rs 971 in 8 to 10 months time frame on an expected P/E of 21x and FY19 (E) earnings of Rs 46.23.

Mahindra & Mahindra Financial Services: Buy | Target - Rs 609 | Return - 34%

Mahindra & Mahindra Financial Services (MMFS) is one of India’s non-banking finance companies focused in the rural and semi-urban sector and is one of the largest Indian tractor financier.

The company is primarily in the business of financing purchase of new and pre-owned auto and utility vehicles, tractors, cars, commercial vehicles, construction equipment and SME Financing.

The company’s strength in vehicle financing which is showing good traction across products & geography. Its housing-finance loan growth is expected to expand 18-20 percent CAGR.

The main driver for improvement in RoA would be gradual increased share of SME business going ahead. Normal Monsoon, Higher farm income and Govt. spending will give boost to company’s business.

The company has a strong Rural & Semi-Urban area presence – with 1284 offices covering 27 States & 4 Union Territories. The company has a healthy mix of Both - ( A) Vertical lending across products & (B) Geographic mix which reduces volatility & risk. We have a Buy coverage on M&M Financial with a target price of Rs 609 per share.

Indostar Capital Finance: Buy | Target - Rs 650 | Return - 29%

Indostar Capital Finance (Indostar) is an NBFC promoted by Mauritius-based Indostar Capital (a holding company with a 57.7 percent stake in Indostar and owned by various institutions, including the Everstone Group, which has a 51.2 percent stake in Indostar Capital).

It commenced operations in 2011. In Apr’17, Sridhar (ex-CEO of Shriram Transport) was appointed Indostar's CEO to lead its foray into vehicle and housing finance. The company has demonstrated strong execution capabilities (loan book posted a 25 percent CAGR over FY14-18) by initially building the corporate book (74 percent of loans as of FY18) and subsequently entering SME financing and effectively executing its strategy in the segment (23 percent of loans as of FY18).

Over the past year, the company has tried to balance its loan book by diversifying its exposure into retail segments such as vehicle and housing finance.We forecast a net profit CAGR of 25 percent over FY18-20E, led by strong loan growth (50 percent CAGR over FY18-20E) and steady asset quality.

We forecasts RoA/RoE of 3.1/11.2 percent by FY20E (versus 3.7/11.7 percent in FY17). Indostar trades at 1.3x BV FY20E, which is the cheapest among NBFCs in coverage. We initiate coverage with a Buy rating and a Mar'19 target price of Rs 650, valuing the stock at 1.7x Mar’20 PB (implied FY20 P/E of 16x).

J Kumar Infraprojects: Buy | Target - Rs 321 | Return - 42%

Buttressed by stable order inflows so far this fiscal, JKIL is eying projects over Rs 4,500 crore for the next couple of years, including metro rail orders of Pune, Mumbai Delhi and Bangalore. It recently bagged order for construction of underground shafts and R&R facilities for Pune Metro Rail worth some Rs 222 crore.

Yet large orders of the size of Mumbai Metro Line 3 have not been assayed last fiscal. It missed out on not so thinly discussed projects like Mumbai Trans Harbor Link (MTHL) and Mumbai Nagpur Expressway (where it failed to emerge among 18 successful bidders). It also lost out on Mumbai Metro Line 4 corridor order where consortiums of Reliance Infrastructure and Tata Project emerged as successful bidders.

Earnings fortification over the next few years rest on timely execution of sizeable projects - Mumbai metro line2, line 3, and JNPT road projects.

Execution of newly bagged projects like Pune Metro Rail, improvement of Chheda Nagar Junction, Ghatkopar and construction of South Delhi Municipal Corporation Head Quarter would not gather pace before the start of next fiscal.

On balance, we advise buying the stock with revised target of Rs 321 (previous target: Rs 273) based on 13x FY20e earnings (forward peg: 0.7) over a period of 9-12 months.

Capacit'e Infraprojects: Buy | Target - Rs 397 | Return - 48%

Notwithstanding the recent turmoil in EPC stocks, business fundamentals of Capacit’e Infraprojects continue to strengthen—not only has the company entered the public sector space that widens its catchment area, it continues to bag repeat orders from multiple clients in the private sector.

With its book-to-bill crossing 5x, the company is set for robust growth (Building a reputation for quality; initiating coverage). We believe investors looking for quality companies with a proven track record, strong earnings potential (31 percent EPS CAGR over FY18–20), a lean balance sheet (negative net debt) and attractive valuations (13.3x FY20E EPS) should consider Capacit’e.

We expect steady topline growth, a stable margin trajectory and declining debt to drive 23 percent revenue CAGR and 31 percent EPS CAGR over FY18–20E (excluding BDD Chawls).

Additionally, rising scale and better cash flow will lend impetus to return ratios. We maintain Buy with a target price of Rs 397 assigning P/E of 20x to FY20E earnings.

MORE WILL UPDATE SOON!!