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!!

Stock Ideas

  

Market Strategy

Nifty has remained above 11600 once it moved above these levels in the early part of the week. The index is expected to remain in the range while the stock specific moves are likely to come on surface. The volatility has remained low which signifies that the current trend should continue. Move above 14% in India VIX only would lead to any major profit booking in near term. The recent rollovers in Nifty are seen on rising roll cost of 0.5% which is higher than the last three series average of 0.3%. This means the market may consolidate for sometime before picking up the uptrend again.

Index Outlook

Bank Nifty : The Bank Nifty ended the August F&O series on a muted note where the private banks continued to witness profit booking whereas the fall extended in Yes Bank which slipped nearly 6% on the last day of the week. Short covering trend seen in few PSU banks which has provided cushion to the index.

Derivatives strategies

Buy Shree Cement (SHRCEM) September Future in the range of 18970-19120, Target: 21180, Stop Loss: 17770

Rationale:

The set up for Nifty remains accretive for stock specific recovery as it is expected to consolidate in the range of 11600-11800 at the start of September series. Stocks with stable rollover actions are seeing good price performance, suggesting august series price buoyancy to continue. Cement stocks are seeing good price move and at the start of the series, the long bias in the Shree Cement has seen smooth rollover to September series. As long as this long addition trend continues ,the stock is likely to head higher. Stocks is yet to witness any major delivery based action since the stock started recovering in July series, this suggest strong hands are still intact in the stock. MORE WILL UPDATE SOON!!

Brokerages upgrade these 20 stocks in August; should you buy?

The Sensex and Nifty rallied more than 9 percent each to scale new highs of 38,989.65 and 11,760.20 respectively in current week while the BSE Midcap index jumped over 8 percent and Smallcap climbed over 6 percent in two months.

 

The strong momentum built up in the market in July, due to in line-to-better-than-expected June quarter earnings, continued in August as well. The Sensex and Nifty rallied more than 9 percent each to scale new highs of 38,989.65 and 11,760.20, respectively, in the current week. The BSE Midcap and Smallcap indices jumped over 8 percent and 6 percent in two months, respectively.

Apart from earnings, improved foreign institutional inflow, consistent support from domestic institutional investors and easing global trade tensions lifted market sentiment. Experts believe the momentum is likely to continue for the next few months.

We remain constructive on Indian equities going forward. We essentially derive our confidence from the pick-up in industrial activity and robust consumer demand aided by strong rural growth, which has now begun to reflect in Q1 FY19 earnings.

We see earnings growth of over 15 percent CAGR in FY19 and FY20. If this pans out as expected, we may even see a compression in market P/E multiple, which seems relatively elevated at current levels.

Jubilant Foodworks: Buy | Target: Rs 1,750 | Return: 12%

Global brokerage firm UBS has upgraded the stock rating to Neutral from Sell and also raised target price to Rs 1,750 from Rs 950, implying potential upside of 13 percent.

Revenue and same-store-sales growth momentum can be maintained by the company and Jubilant is unlikely to lose the battle against its competitors in the long run.

We see limited upside till return on invested capital (RoIC) improvements begin to show.

Brokerage: Kotak Securities

Phoenix Mills: Buy | Target: Rs 707 | Return: 16%

Revenue growth going forward is likely to be led by rental renewals and improvement in commercial and hospitality revenues. We maintain estimates and expect revenues to grow at a CAGR of 7.4 percent between FY18-20.

Operating margins improved during the quarter on YoY basis but were impacted by fit outs going on at HSP which led to lower CAM charges. Going forward, we expect operating margins of 48.7/49.5 percent for FY19/20 respectively.

We maintain estimates and expect net profits to grow at a CAGR of 14.5 percent between FY18-20.

We continue to remain positive on the company and maintain price target of Rs 707 based on sum of the parts valuation on FY20 estimates. Owing to adequate upside from current levels, we upgrade the stock to Buy from Accumulate earlier.

ITD Cementation: Buy | Target: Rs 190 | Return: 41%

Strong, 25 percent, Q1 FY19 revenue growth was a sign of the shape of things to come for ITD Cementation. Q2FY19 is even better with even stronger revenue growth, implying execution is gathering pace with each passing quarter.

The quarter could have been better on order additions, but a healthy L1 status and a buoyant opportunity landscape suggest better days ahead.

With its strong order backlog (and good progress in new orders), a buoyant opportunity landscape and a healthy balance sheet, the future looks bright. The fall in the stock price (around 17 percent in three months, around 29 percent in six) renders it attractive. Thus, we upgrade it to a Buy.

We value it at a PE of 16x FY20 to arrive at a target price of Rs 190. Risk would be any slower-than-expected execution.

Swaraj Engines: Buy | Target: Rs 2,498 | Return: 40%

We expect that triggers for tractor growth and expected strong growth in FY19 would throw up prospects for Swaraj Engines to post strong earnings growth. Due to the recent drop in the stock price we upgrade rating to a Buy.

Against the backdrop of the 11 percent, CAGR in volumes over FY18-20 to 1,14,106, units, we expect revenue to grow 10 percent to Rs 930 crore and lead to an 11 percent CAGR in EBITDA. With the company’s lean cost structure and strong balance sheet, we value the stock at 30x FY20e EPS of `83.3 and arrive at a target price of Rs 2,498.

Risk would be constrained volume growth in M&M tractors would cut into volume and earnings growth.

Everest Industries: Buy | Target: Rs 671 | Return: 20%

The sound performance of its BP division and its de-leveraging led Everest to report its highest-ever quarterly PAT. Its Steel Building division’s roller-coaster performance, though, will continue to be a matter of concern.

We believe that Everest will benefit from rising demand because of its widest range of roofing products, its continuous focus on launching variants with value-added features and its greater operating efficiency. We upgrade rating to a Buy, with a target price of Rs 671.

Risks would be rise in input costs, currency fluctuations.

Oracle Financial Services: Accumulate | Target: Rs 4,650 | Return: 12%

Despite the decline in new license revenue, OFSS has seen healthy deal signings in the new license sales in Q1FY19; bookings have grown 40 percent YoY to USD 28 million as on Q1FY19 led by the new OBP deal win. The management indicated of one more large OBP deal in the pipeline and expects license revenue to cross $ 100 million for full year FY19 (over 13 percent YoY growth in bookings) we have estimated license revenue growth of 14 percent YoY in FY19.

We upgrade earnings estimates by 9 percent for FY20/FY21. We upgrade OFSS to an Accumulate (Reduce earlier) rating and rollover to a Sep’19 target price of Rs 4,650 (Rs 4,250 earlier) based on 21.5x one-year forward PER.

Sun Pharma: Buy | Target: Rs 690 | Return: 11%

Q1 numbers were upbeat on the earnings front while momentum in speciality pipeline ramp-up also looks promising. Going ahead, the management expects near term margins to get impacted due to frontloading of cost of specialty launches. This optical move is the culmination of the management’s long going endeavour for a drift from generics to specialty in the backdrop of US headwinds. This, we believe, is the key differentiator vis-à-vis peers.

The management has reiterated double digit growth guidance for FY19 with slew of specialty launches in the US besides Halol decongestion. We upgrade the stock to Buy as we believe the management is hitting the right chord with sustained planning and investments in the specialty portfolio. Target price is Rs 690 based on 26x FY20E EPS of Rs 25.1 and Rs 38 NPV for Tildrakizumab.

Godrej Properties: Buy | Target: Rs 899 | Return: 29%

We have upgraded the stock to Buy from Add and maintained target price at Rs 899 per shares after Q1 earnings.

Bandra-Kurla Complex commercial project contributed majority of revenue in Q1FY19 and sales volumes were driven by new launches.

Earnings were muted on implementation of IndAS 115 accounting standard.

Equitas Holdings: Buy | Target: Rs 190 | Return: 23%

We have upgraded the stock to Buy from Add with increased target price at Rs 190 from Rs 180 per share.

Earnings upgrades are driven by asset growth. We have changed FY18-20 loan growth CAGR from 25.1 percent to 35.8 percent and upgraded earnings estimates by 3-12 percent for FY19-20.

APL Apollo Tubes: Buy | Target: Rs 2,120 | Return: 25%

APL Apollo reported strong set of numbers during Q1 FY19 driven by robust pickup in volumes. The company registered 45 percent topline growth in Q1 FY19 backed by around 14 percent YoY growth in overall volume and around 28 percent YoY increase in realisation across product portfolio.

Going forward, volume growth is likely to remain strong driven by higher underlying product demand and benefits arising from ramp-up of new capacities that would cater to new end-use segments. The rise in share of high margin products would translate into robust earnings growth. We upgrade rating to Buy with the target price of Rs 2,120.

NTPC: Buy | Target: Rs 187 | Return: 11%

NTPC reported Q1 FY19 performance largely inline with estimates with the standalone topline growing around 14 percent YoY. The growth was primarily aided by 8 percent growth in power generation and sharp jump in tariff (improved from an average of Rs 3.23 in FY18 to Rs 3.36 in Q1 FY19).

Going forward, the management has guided for the limited impact of coal shortages in the rest of FY19. NTPC’s total group capacity at the end of Q1 FY19 has reached to around 54GW and the company is targeting to add 5GW capacity each in FY19E and FY20E. With these additions, the overall capacity is poised to reach around 64GW by FY20E.

Going forward, new capacities coming on-stream and PLF improvement would be the key drivers of revenues and earnings for the Company. With recent correction in stock price, we upgrade rating to Buy with target price of Rs 187.

Oberoi Realty: Buy | Target: Rs 598 | Return: 30%

After a muted Q4FY18, ORL had an impressive start to FY19 clocking in 0.3 million sqft in pre-sales and Rs 620 crore in sales value. Revenue came in at Rs 890 crore in Q1FY19 (lower by Rs 1,130 crore due to IND AS 115). Since ORL's contracts don't have a termination clause, ORL can continue to follow percentage completion method for revenue recognition.

ORL will continue to assess internal thresholds for booking margins. While the Borivali project has met margin recognition in Q1FY19, for Mulund the entire pending margins will be recognised only later in FY19E. ORL’s recent QIP proceed of Rs 1,200 crore will be used as growth capital towards fresh land purchases (not too eager to indulge in JDAs).

With recent price correction we upgrade ORL to Buy from Neutral with Rs 598 per share target price.

ACC: Buy | Target: Rs 1,900 | Return: 17%

We have upgraded the stock to Buy from Neutral and raised target price to Rs 1,900 from Rs 1,890 earlier.

After correction, valuations are no longer demanding. Cycle uptrend has begun and earnings recovery is on track.

Volume upside in ACC is limited, but it may surprise on realisations/costs.

Ambuja Cements: Buy | Target: Rs 295 | Return: 25%

We have upgraded the stock to Buy from Neutral earlier but slashed target price to Rs 295 from Rs 300 as post-correction valuations are attractive.

As demand growth continues, earnings outlook looks better. New capacity improved its volume outlook. We see synergy benefits to improve after master supply agreement.

DHFL: Buy | Target: Rs 775 | Return: 16%

Return on equity (ROE) improvement should drive re-rating for DHFL. We expect ROEs to improve to 15-16 percent despite dilution built in FY19F.

We have upgraded DHFL to Buy with target price of Rs 775 per share.

Indiabulls Housing: Buy | Target: Rs 1,750 | Return: 35%

We have upgraded the stock to Buy from Neutral and raised target price to Rs 1,750 from Rs 1,500 per share earlier. We also raised profit estimates by 3-7 percent.

We factored in lower provisioning & better growth under IndAS. We expect RoE of 27-29 percent on increased net worth.

BPCL: Buy | Target: Rs 509 | Return: 42%

We upgrade BPCL to Buy from Reduce, as we believe the oil marketing companies (OMCs) would be able to pass on impact of higher crude prices on retail diesel/gasoline sales indicated from recent recovery in margins despite elevated crude prices presently at around $75 per barrel. We revised target price to Rs 509 from Rs 496, as we expect higher retail margins from Rs 2 per litre to Rs 2.2 per litre.

We increased FY19E EPS by 15 percent and FY20E EPS by 20 percent on higher retail margins.

Eicher Motors: Buy | Target: Rs 32,249 | Return: 12%

Company's Q1 results are in-line with Royal Enfield's Margin at 32.3 percent & VECV's at 9.2 percent. Royal Enfield continued to post same-store-sales growth of 10 percent.

Competition is still couple of years away. Even after volume growth moderated, company is still a 25 percent earnings CAGR story.

We have upgraded the stock to Buy with a target price at Rs 32,249 per share.

M&M: Buy | Target: Rs 1,042 | Return: 6%

We have upgraded the stock to Buy from Hold and raised target price to Rs 1,042 from Rs 950 per share as Q1 earnings beat estimates by 5 percent driven by a strong margin.

Company is relatively most impacted among OEMs going into BS VI emission norms. Tractors are expected to hit a downcycle possibly in FY21.

Till FY20, company can continue the strong ride. We have raised FY19/20 earnings estimates to 13/15 percent.

Colgate Palmolive: Outperform | Target: 1,320 | Return: 15%

We have upgraded the stock to Outperform from Neutral with increased target price at Rs 1,320 from Rs 1,150 per share earlier.

Market share loss is likely to stem as Patanjali's impact reduced. We expect company's market share to stop dropping in the next two quarters.

Margin will be lower in FY19 but will recover in FY20. We have increased FY20/21 earnings estimate by 1-4 percent.

MORE WILL UPDATE SOON!!

Short-term traders are advised to remain light in case Nifty hits 12K in September

September may not be a stronger month and should ideally witness profit booking as the rally is stretched on the upside.

 

In line with our projections given in these columns in the last two months, the move was pretty strong but we should not forget that such a move was seen after witnessing an extremely range bound activity in the months of May and June.

So, September may not  be a stronger month and should ideally witness profit booking as the rally is stretched on the upside.

This is the 9th week from the lows of 10,556. This kind of vertical up move was not witnessed in the recent past at least from June 2017 onwards as all the rallies perished after 6 – 8 weeks paving the way for multi-week correction.

However, by looking at larger trends we draw a lot of comforts as this rally has legs on the upside. In Elliot Wave parlance this leg of the move is clearly looking like a Wave 3.

It means that any correction in the form of Wave 4 is going to present an opportunity to create fresh long positions as one price cycle will end only after the completion of 5 legs.

It is difficult to project where exactly wave 3 is going to end. But, taking different parameters on short-term charts we can conclude that this leg of up move is nearing its end which should be followed by a multi-week correction.

So, the short-term traders are advised to remain cautiously optimistic as this rally is already 9 weeks old and appears to be having limited upsides.

On the upside, there is still room, and in case 11,760 is breached Nifty will head towards 12,000. But, the correction post this upmove from whatever point it unfolds is going to be sharp and is likely to last just a couple of weeks.

In the light of the above explanation, momentum may last for some more time but as the series progresses bigger correction can’t be ruled out.

Short-term traders are advised to remain light on long positions at higher levels if we head towards 12000 as this month may remain volatile and choppy.

Outlook on Bank Nifty......

We suspect Bank Nifty has registered a short-term top on 10th of August itself around 28,300 levels as it is stuck up in a range of 28388 – 27740 levels since then.

Unless it registers a decisive breakout above 28390 levels sentiment in the broader markets may not be on a strong footing.

On such a breakout it can easily head towards a target of 29,000. Contrary to this a breakdown below this range shall result in the test of its 50-day Moving Average whose value is placed around 27,440 levels.

Views on rupee which touched a fresh low of Rs 71/USD......

The price action on Dalal Street is clearly suggesting that it is not much worried about the fall in rupee. Usually under normal conditions when US Dollar Index is falling rupee should have appreciated.

But, this time for the last 15 days Dollar Index is down from the highs of 96.86 (registered on 15th of August) to a recent low of 94.34 but it failed to trigger an upmove in rupee which is down from 69.50 to almost 71 in the last couple of days.

So this leg of fall in rupee is not driven by the appreciation of Dollar which will be the case usually. Hence, rupee may be falling on its own weight. If this weakness persists it can be a cause for concern sooner than later.

Technically speaking recent breakdown of rupee has a target placed around 72.15 which can be materialized if the dollar/pair pair settles above 71. Strength in rupee should not be expected unless dollar trades below 69.50 levels.

Top five 3-5 stock trading strategies for September series?

Here's a list of top three stocks which could give 4-5% return in September series:

Tata Elxsi: Buy| LTP: Rs 1435| Target: Rs 1490| Stop Loss: Rs 1390| Return 4%

After the recent correction from the lifetime highs of Rs 1490, this counter appears to have hit a bottom around Rs 1390 levels and resumed its upmove.

In case this correction culminates after 23 sessions of corrective and consolidation phase then ideally this counter shall register a new high beyond Rs 1490 levels.

Hence, positional traders should buy into this counter for an initial target of 1490 levels with a stop below 1390 on a closing basis.

There can be a minor hiccup around 1462 which should eventually be conquered in case of a fresh leg of the upswing is in progress.

Hero MotoCorp: Buy| LTP: 3253| Target: Rs 3418| Stop Loss: Rs 3180| Return 5%

This counter appears to have posted a short-term bottom around Rs 3190 levels after retracing 50 percent of its last leg of the upswing from the lows of Rs 3033 – 3350 levels.

Hence, positional traders can make use of this opportunity to go long for an initial target of Rs 3350 levels with a stop of Rs 3180. But, once Rs 3350 is conquered a bigger target towards Rs 3418 can’t be ruled out.

Bajaj Auto: Buy| LTP: Rs 2746| Target: Rs 2900| Stop Loss: Rs 2690| Return 5.6%

After a sharp fall from Rs 3150 levels, this counter appears to be consolidating in the range of Rs 2600 – 2770 levels for the last couple of weeks and looks ripe for a breakout.

In such a scenario the range target itself can be Rs 2930 kind of levels. Hence, one should make use of this consolidation phase to go long for a target of Rs 2900 levels with a stop below Rs 2690 on a closing basis.

MORE WILL UPDATE SOON!!

India's growth engine picks pace: GDP expands 8.2% in June quarter, highest in two years

India also cemented its status as the world’s fastest growing major economy, ahead of China, which grew 6.7 percent in April-June 2018.

   

The Indian economy grew 8.2 percent in April-June this year, the highest in two years, amid signs that households are buying more and companies are adding capacities, shrugging off the disorderly effects of the twin shocks of demonetisation and the goods and services tax (GST).

India also cemented its status as the world’s fastest growing major economy, ahead of China, which grew 6.7 percent in April-June 2018. At the current pace, India looks set to become the world’s fifth largest economy, ahead of the United Kingdom.

According to latest World Bank data, India edged past France to become the world's sixth largest economy. India's GDP stood at USD 2.597 trillion (Rs 178 lakh crore) in 2017 in current prices in market exchange rates, ahead of France whose GDP stood at USD 2.582 trillion (Rs 177 lakh crore) in 2017.

Finance minister Arun Jaitley on Wednesday said that India is likely to overtake United Kingdom (GDP USD 2.622 trillion) as the fifth largest economy by next year.

This is the fastest growth in eight quarters and signals quick turnaround aided by rapid construction activity, consumer spending and corporate investment.

Latest national income numbers put out by the Central Statistics Office (CSO) on Friday show that gross value added (GVA) in constant 2011-12 prices grew 8 percent in April-June 2018, significantly higher than the last year’s 5.6 percent growth during the same quarter.

Despite an uncertain international environment and volatile crude oil prices, India’s sustained growth reflects its strong resilience to adverse global conditions, because of strong economic fundamentals. The encouraging growth rates in agriculture, manufacturing and construction show that the growth momentum continues to be broad based. In addition, one also expects favourable monsoons to further boost agricultural output and rural consumption in the coming quarters.

GVA, which is GDP minus taxes, serves as a more realistic proxy to measure changes in the aggregate value of goods and services produced in the economy.

The growth in India’s real or inflation-adjusted gross domestic product (GDP) in April-June, however, is also partly because of low growth of 5.6 percent in the same quarter last year, with a favourable “base effect” perhaps magnifying the expansion pace in the broader economy due.

Companies had significantly scaled down production in June 2017 as part of a business strategy to carry over as little old stock as possible into July when GST kicked-in, triggering an unexpected mid-year pre-GST “sale” season on many products at heavy price markdowns.

The manufacturing sector grew 13.5% percent in April-June, from (-) 1.8 percent in the same period last year, mirroring the trends in output activity seen in factory floors.

The index of industrial production (IIP) — the broadest approximation to measure activity across India’s factories — has grown at 5.2 percent during April-June 2018 compared with 1.9 percent in the same period last year.

The growth in the manufacturing sector is also broadly in line with shop-end sales, with car sales reporting record growth numbers, aided by greater disposable income or expectations of higher income in the coming months.

Private consumption seems to be improving. Private final consumption expenditure (PFCE), in inflation-adjusted prices — a gauge to measure changes in household spending — grew 8.6 percent in April-June to Rs 18.52 lakh crore from Rs 17.05 lakh crore in the same quarter last year.

Domestic air passenger traffic, robust rail freight movement, rising sales growth of passenger vehicles and strong consumer durables sales also point to a turnaround in the greater household spending.

The external sector, however, remains a weak link. Merchandise import growth has slowed because of gold imports, while export growth has also weakened.

The agriculture sector grew 5.3 percent, from 3 percent in the same period last year, largely reflecting a strong Rabi or winter sown harvest. The monsoon rains, critical for the summer-sown kharif crop, has been slightly below normal this year so far, particularly in the grain bowl states in north India, but the shortfall isn’t alarming enough to pull down growth in the broader economy.

The performance of industry and agriculture have encouragingly improved. It probably indicates some employment generation in labour-intensive sectors.

Construction activity has also rebounded strongly, growing 8.7 percent in April-June, from 1.8 percent in the same quarter last year, showing heightened activity in infrastructure, particularly road construction with strong multiplier effects across key sectors such as cement and steel.

The national income data also showed that government final consumption expenditure (GFCE) or government expenditure grew 7.5 percent at constant prices during the quarter-ended June to Rs 3.97 lakh crore from Rs 3.69 lakh crore during the same quarter a year ago.

Gross Fixed Capital Formation (GFCF), a useful metric to measure corporate investment activity, grew 10.0 percent in April-June.

The continued improvement in investment is probably reflecting better business and policy climate and a sustained pickup in this component will ensure that overall growth will find a firm footing,” Prasanna said, adding that the underperformance of the services components is largely due to lackluster performance of the trade segment, which is probably still adjusting to the GST transition and concomitant formalization.

Trade, hotels, transport, communication and services related to broadcasting grew at 6.7 percent in April-June as compared with 8.4 percent jump during the same period a year ago. Financial, real estate and professional services grew 6.5 percent, from 8.4 percent a year ago.

MORE WILL UPDATE SOON !!

We are betting on these top 5 portfolio stocks, should you?

We  advise investors to buy business which are run in a capital efficient way and possess sustainable growth prospects.

 

We feel with the worst behind us in the banking space, pick-up in industrial activity and upbeat farm sentiment, one can expect over 20 percent earnings growth over FY18-20e.

He advises investors to buy business which are run in a capital efficient way and possess sustainable growth prospects. We are  positive on Grindwell Norton, Heidelberg Cement, ITC, Sterlite Technologies and Sun Pharmaceutical Industries.

We remain constructive on Indian equities going forward. We essentially derive our confidence from the pick-up in industrial activity and robust consumer demand aided by strong rural growth, which has now begun to reflect in Q1 FY19 earnings. Leading indicators - cement volume growth, tendering activity etc - also points to a marked improvement in capex outlook. There is no alternative (TINA) factor remains for equities as physical assets remain unattractive and monthly flows into equities continue, thereby keeping the underlying strength intact.

The rupee may continue to track emerging market currency complex, which currently is fragile. EM weakness is currently idiosyncratic (Turkish lira declined on the back of political chaos, Brazilian real on upcoming elections and Russian ruble and Chinese yuan due to trade war escalations), but has the risk of becoming systemic. As these economies constitute a major pie of the EM asset basket, a more systemic decline in their currency may put pressure on the Indian currency as well. On the positive side, the pace of INR decline may be tepid as debt market yields have turned positive after adjusting for hedging cost (first time since 2013), which has tapered the sharp pace of debt outflows seen from April to June. The Reserve Bank of India has been selling dollar in the spot market and closing forward long dollar positions. It has preemptively initiated two interest rate hikes which could help contain narrowing yield spread between India and the US.

US and China are now actively engaged in several rounds of tit-for-tat tariffs retaliations. This current tariff war is far away from a full blown trade war. If it happens, it could have a much larger impact on global trade. Despite ongoing negotiations, if China retaliates against the recent US proposal of imposing 10 percent tariff on imports worth $200 billion, then there is scope of a currency war escalation in EM. India’s external trade constitute about 28 percent of GDP (lower than most emerging markets) making its growth more of a domestic consumption story. So, unless there is a full blown trade war, the Indian economy is not at risk of losing growth momentum. Easing of US trade discord with Europe and North American Free Trade Agreement members shows that the US administration is willing to negotiate on reasonable terms and may ebb escalating trade war rhetoric.

Sensex companies (excluding the banking space) reported stellar operational performance in Q1 FY19, driven by robust consumer demand and low base due to transition period before implementation of the Goods & Service Tax. Net sales was up 24.2 percent. This coupled with an improvement in earnings before interest, tax, depreciation and amortisation (EBITDA) margin led to a 27 percent growth in operating profit.

Profit after tax was up 15.7 percent year-on-year. Asset quality concerns at public sector banks (PSBs) seems to be fading away with Q1 FY19 being the first quarter witnessing sequential decline in gross and net non-performing assets. On the consumption front, double-digit volume growth in automobiles (about 19 percent) and FMCG (around 12 percent) space was also encouraging, thereby depicting overall demand recovery. With the worst behind us in the banking space, pick-up in industrial activity and upbeat farm sentiment, we are eyeing a heathy over 20 percent earnings growth over FY18-20e.

By FY19-end, the focus would then shift to general elections, which could lead to volatility as investors prefer a stable regime. Global news flows would keep the market volatile going ahead. Underlying macroeconomic growth, coupled with corporate earnings growth momentum, is likely to be a key catalyst for market movement.

Mutual Fund flows are a combination of systematic investor plan flows and lump sum flows. SIP flows are more structural and sticky in nature as opposed to lump sum flows, since these are primarily received from retail investors, while lump sum inflows are more volatile in nature. In recent months, lump sum investments have slowed down significantly. The combined net inflows into equity and equity-oriented funds have dropped from a monthly average of around Rs 21,500 crore in FY18 to about Rs 14,000 crore in FY19 (till July). It is important to note that during this time SIP flows have actually increased from a monthly average of around Rs 5,600 crore in FY18 while in July (Rs 7,554 crore) there were at an all-time high. We do not expect these structural SIP flows to slow down substantially. Lump sum flows, however, may continue to remain volatile on broader market environment and sentiment.

Top five bets that should be a part of investors' portfolio?

Grindwell Norton

Grindwell Norton (GNL) reported a robust Q1FY19 wherein revenues, EBITDA and PAT grew 12.5 percent, 33.5 percent and 45.1 percent, respectively. This was mostly on account of strong growth of 12.5 percent YoY and 29.4 percent YoY in the ceramics and others segment, respectively. These segments also reported strong EBIT margins of 17.1 percent and 24.5 percent, respectively. Going forward, we expect all three segments, abrasives, ceramics and others to grow at a healthy rate of 11.2 percent, 17 percent and 23.5 percent CAGR, respectively, in FY18-20E. Accordingly, we expect GNL to post healthy topline, EBITDA and bottomline growth of 15.1 percent, 13.1 percent and 13.8 percent, respectively, in FY18-20E. Additionally, with a cash balance of Rs 272 crore and debt-free status, we believe GNL is a quality play.

Heidelberg Cement

In Q1FY19, the company reported strong volume growth of 15.0 percent and EBITDA/t in excess of Rs 900/t, indicating a robust improvement in industry dynamics in the company’s area of operation. Going forward, a pick-up in construction activity, better sand availability, normal monsoons and a hike in minimum support prices is expected to keep demand healthy. In addition, operating leverage benefit and cost efficiency are expected to result in margin expansion of 90 bps to 18.9 percent by FY20E.

ITC

ITC reported a strong set of Q1FY19 numbers wherein revenue, EBITDA & PAT increased 7.6 percent, 12.2 percent and 10.1 percent, respectively. Its cigarette segment volume growth was at ~2 percent. This was a surprise as the respective segment has been de-growing in the last five years. We believe volumes should grow 3 percent in FY19E & FY20E. Given expected stable cigarette volume along with stronger profitability in FMCG business, we expect revenue & earnings to grow at a CAGR of 10 percent & 11.6 percent, respectively

Sterlite Technologies

Sterlite Tech remains a quasi-play on rising data demand globally and subsequent need for deep fiberisation of networks. Being an integrated player, it is poised to reap the superior benefits of operating leverage, already seen over the last couple of quarters. We foresee a robust growth potential ahead, with topline, earnings CAGR of 34.6 percent, 38.1 percent, respectively, in FY18-20E.

Sun Pharma

For Sun Pharma, Q1FY19 results were above estimates despite lower-than-expected Taro sales. Going ahead, focus on specialty products in the US is the culmination of the management’s endeavour for a shift from generics in the backdrop of US headwinds. The management has reiterated double digit growth guidance for FY19 with a slew of specialty launches besides Halol decongestion.

MORE WILL UPDATE SOON!!

Brokerages initiate coverage on these 9 smallcaps in August, may return 40% in 1 year

With markets hitting fresh highs, most experts said there is need for a portfolio rejig and investors should add stocks that are showing growth.

The Nifty hit the 11,700 mark this week. Despite expectations that the current bull run is here to stay, experts said investors should be cautious in what they buy. With markets hitting fresh highs, most experts said there is need for a portfolio rejig and investors should add stocks that are showing growth.

  

At a time when markets are trading at record highs, one can invest 40 percent of their portfolio in bonds, 30 percent in largecaps, 15 percent in smallcaps and 15 percent in midcaps for appropriate diversification.We sees sectors such as state-run banks, pharmaceuticals, cement, realty and oil marketing companies are likely to hog the limelight in the medium term.

After the June quarter results, Sensex constituents are expected to report a 20-22 percent compounded annual growth rate over FY18-20. Healthy growth is contingent on the easing of asset quality issues for corporate lenders and normalisation of earnings.

Given the recent recoveries, management commentary and record valuation gap between the private sector, retail banks and corporate lenders, brokerage Sharekhan says it might be a good idea to start nibbling on some quality corporate banks with an 18-24 month investment horizon. “We would suggest exploring opportunities in the industrial and quality midcap space now. We remain constructive on consumption, retail, and IT sectors.

Here is a list of top 10 companies where brokerages have initiated coverage in August. These stocks can return up to 40 percent in the next 12 months from their August 24 closing price:

NIIT: Buy| LTP: 96| Target: Rs 138| Return 43%

Elara Capital initiates coverage on NIIT Ltd on August 14 with a buy recommendation and a target price of Rs 138 which translates into an upside of 43 percent.

NIIT (NIIT IN) has transformed its revenue profile from an India-centric, retail-oriented IT training business to an exports-oriented, asset-light B2B training outsourcing business over FY10-18.

Revenue volatility has been reduced by adding large, multi-year structured deals from international marquee corporate customers. Over FY15-18, the retail training business has also been revamped and repositioned to focus just on India & China and shorter duration programs, such as digital marketing.

The brokerage firm expects visible revenue growth for NIIT starting in FY19. Given strong Order book for CLG and visibility into FY20 with the contract with the Real Estate Council of Ontario (RECO), Elara expects revenue growth for NIIT to continue into FY20 and beyond.

Amber Enterprises Ltd: Buy| LTP: Rs 942.40| Target: Rs 1145| Return 21%

Kotak Securities initiated coverage on Amber Enterprises on August 10 with a buy recommendation and a target price of Rs 1,145.

Amber Enterprises (AEL) is the leading OEM/ODM for several room AC (RAC) brands in India, with a 55.4 percent market share. Being the market leader, Kotak Securities sees Amber as a significant beneficiary, thanks to a) its established relationship with 8 out of top 10 RAC companies, b) high level of backward integration, c) scale of manufacturing and testing facilities & d) impressive R&D capabilities.

Given the strong demand dynamics of room AC industry, it expects AEL to post consolidated sales/PAT CAGR of 22%/53% over FY18-FY20E. AEL is a good play on India’s growing OEM/ODM RAC market.

V-Mart Retail Ltd: Buy| LTP: Rs 3011| Target: Rs 3316| Return 10%

Elara Capital initiates coverage on V-Mart Retail for the first time on August 6 with a buy rating and a target price of Rs 3,316.

V-Mart Retail (VMART IN) has built its business model around value retailing in emerging India where there is still a huge gap between aspirational growth and organized retail presence. VMART has based its stores to cater to the “under-consumed” India, extending across Tier II, III & IV cities and towns.

Despite expanding its store base from 22 to 171 at a CAGR of 23 percent and retaining a sales CAGR of 29 percent over FY08-18, the company has kept a debt-free balance sheet, maintained high operating profitability (10%+) & high ROCE (34%), and generated free cash flow (INR 701mn in the past four years).

Sheela Foam Ltd: Buy| LTP: Rs 1622.90| Target: Rs 1744| Return 7.5%

ICICI Securities Ltd initiates coverage on Sheela Foam with a buy rating on July 30 with a target price of Rs 1744. Sheela Foam (SFoam) is the leader in the organised mattress market in India with a 23 percent market share in terms of value.

“We believe the company is best positioned to capture the opportunity being unlocked from the largely unorganised market, the macro-triggers being: 1) shift of preference from the cotton mattress to non-cotton mattress, 2) rising income levels, and 3) low penetration.

SFoam’s revenue has grown at CAGR of 11.3 percent between FY13-FY18, and ICICI Securities expects the revenue growth CAGR of 15.1 percent over FY18-21E aided by a confluence of gradual shift of customer preference toward the non-cotton mattress segment and SFoam’s strategy of: 1) premiumising and sub-segmenting, 2) expansion of distribution network, 3) outsourcing of some products, 4) higher focus on branding, and 5) product customization.

Jyothy Laboratories Ltd: Buy| LTP: Rs 201| Target: Rs 270| Return 34%

Ventura initiated coverage on Jyothy Laboratories for the first time on August 13 with a buy recommendation and a target price of Rs 270.

Post the acquisition, Jyothy Laboratories Ltd (JLL) has demonstrated impeccable growth with Revenues, EBITDA & PAT witnessing 10.9%, 21.3%, and 29.2% CAGR growth respectively.

Along with strong performance, debt has seen a substantial reduction with return ratios climbing. The market too has re-rated the stock reflected in the buoyant prices. While the stock is not cheap, the brokerage firm, still believes that going forth the robust growth should continue.

Elgi Equipment Ltd: Buy| LTP: Rs 289.70| Target: Rs 350| Return 21%

We initiates coverage on Elgi Equipment for the first time on August 17 with a buy recommendation for a target price of Rs 350. Elgi Equipments (Elgi) manufactures a complete range of compressed air solutions including a wide range of air compressors.

Globally, it is the eighth largest player commanding ~1.3 percent market share. Its manufacturing facilities are spread across India, Europe & America. Air compressors, automotive equipment contributed 88.1%, 11.9%, respectively in FY18.

With a profitable turnaround of foreign subsidiaries like Rotair in Italy, Patton’s in US, coupled with signs of growth revival in Indian operations, Elgi is in a sweet spot for solid business performance in the next couple of years.

The global brokerage firm expects Elgi to report revenue CAGR of 18 percent and a PAT CAGR of 28.7 percent in FY18-20E.

Westlife Development: Buy| LTP: 391| Target: Rs 485| Return 24%

Nirmal Bank re-initiates coverage on Westlife Development on August 24 with a buy rating and a target price of Rs 485. Westlife Development (WLDL) through its 100% subsidiary, Hardcastle Restaurants Pvt. Ltd, owns and operates a chain of McDonald’s restaurants in west and south India, being a master franchisee of McDonald’s Corporation, USA.

The management’s focus on the value-for-money proposition, menu innovation and efforts in improving consumer experience have helped the brand to sail through a challenging environment in the past.

‘Burger Plus’ is the differentiating factor for WLDL and has really helped in recruiting new consumers and driving frequency of eating out. The brokerage firm believes that Quick Service Restaurant (QSR) sector in India is at an inflection point and WLDL is set to grow well ahead of the market on account of company-led initiatives. It expects the revenue/EBITDA/PAT to post a three-year CAGR of 22%/54%/99%, respectively, over FY18-FY21E.

TTK Prestige Ltd: Buy| LTP: Rs 6408| Target: Rs 7500| Return 17%

Angel Broking Ltd initiates coverage on TTK Prestige on August 17 with a buy recommendation and a target price of Rs 7500.

TTK Prestige (TTK) is the leading brands in kitchen appliances with 40 percent+ market share in the organized market. It has evolved from being a single product company to a multi-product company offering an entire gamut of the kitchen and home appliances (600+ products).

It expects to double its revenue in the next 5 years backed by a revival in consumption demand, new 5 cr LPG connections under the Ujjawala Scheme, inorganic expansion and traction in exports.

Aditya Birla Fashion: Buy| LTP: Rs 201| Target: Rs 220| Return 10%

Kotak Institutional Equities initiates coverage on Aditya Birla Fashion on August 23 with a buy recommendation and a target price of Rs 220, based on June 2020E EV/EBITDA of 20x for Madura and EV/EBITDA of 17x for Pantaloons.

Madura is a steady growth and strong FCF generating business, while Pantaloons turnaround can provide a strong margin kicker. We forecast healthy revenue/PBT CAGR of 16/124% over

FY2018-21 driving a reduction in leverage and improvement in return ratios.

Dixon Technologies Ltd: Buy| LTP: Rs 2585| Target: Rs 3285| Return 27%

Nirmal Bang initiates coverage on Dixon Technologies for the first time on August 21 with a buy recommendation and a target price of Rs 3285.

Dixon Technologies (India) or DTIL is the second-largest EMS (electronic manufacturing services) player in India with a market share of 9.3 percent. The EMS industry in India offers robust growth prospects, of which DTIL will be a major beneficiary.

Over the past few quarters, DTIL has been investing in backward integration and capacity expansion across product categories to improve its value offerings, which has led to increased costs and lower-than-expected profitability.

However, the exercise is nearing completion in 2QFY19, a post which DTIL is likely to reap immense benefits. DTIL posted industry-leading revenue CAGR of 30 percent over the past five years.

With multiple growths and margin levers in place, we expect DTIL to register 19%/31% revenue/PAT CAGR, respectively, over FY18-FY21E. We initiate coverage on DTIL with a Buy rating and a target price of Rs 3,285 based on 35x FY20E earnings, assigning it 1.1x PEG ratio and a 10% discount to branded peers.

MORE WILL UPDATE SOON!!