The government initiatives to bring economy back on growth track lifted overall market sentiment which resulted into 13 percent market rally since September. In fact, benchmark indices hit a fresh high towards the end of November and currently after consolidation for more than a week again inched towards those earlier highs.
It is all thanks to inflow of foreign money, especially after the government measures, including cut in corporate tax rate.
Experts believe the government efforts to bring the economy on track will be seen in coming years and currently the rally seen in few stocks that helped benchmark indices report double-digit return in just three months will trickle down to mid and smallcaps also in coming years.
"We expect the upcoming year to be a good for equity investments, especially the midcaps, following the aggressive roadmap of reforms undertaken by the government treading fiscal prudence path," Axis Securities said.
"We expect Nifty50 earnings to grow by 10 percent in FY20 and 27 percent in FY21. For the next three years, we are building in earnings CAGR of 18 percent for Nifty-50 as compared to the previous three years CAGR of 8 percent," Kotak Securities said.
Brokerage houses have identified a bouquet of stocks for investment over next year: Brokerage: Axis Securities Larsen & Toubro | Target: Rs 1,736 | Return: 33 percent
A robust order book, strong balance sheet, diversified business portfolio and proven execution capabilities are acting as an economic moat for the company in the current volatile and challenging economic environment.
Cholamandalam Investment | Target: Rs 387 | Return: 22 percent
Axis bets on company's healthy earnings growth, superior execution track record with sustained asset growth and control on NPAs despite sectoral headwinds.
Minda Industries | Target: Rs 410 | Return: 19 percent
Technology led new product lines, focussed on leveraging the connected and autonomous trend of vehicles, will provide for superior growth going forward.
KEC International | Target: Rs 367 | Return: 27 percent
Focus on non-T&D verticals, geographical diversification and continuous infrastructure push by governments across the globe is expected to augur well for KEC.
Security & Intelligence | Target: Rs 1,100 | Return: 19 percent
Growing outsourced demand for the security services, leading position in the facility management and cash logistics business will help SIS to grow with higher growth momentum.
Mold-Tek Packaging | Target: Rs 351 | Return: 27 percent
Improved volume growth from paints is a positive and rising F&F share will aid margin sustenance.
Brokerage: Anand Rathi HDFC Life | Target: Rs 710 | Return: 21 percent
In terms of macro scenario, the domestic life industry has plenty upside as India remains significantly under-insured, both in terms of penetration and density. Further improving life expectancy, young Indian population, increasing disposable income and rising awareness of risk protection will continue to be the demand drivers in the sector.
Given HDFC Life’s solid product mix, diversified distribution network, track record of consistent strong performance and favourable macro traits, we believe the company is well-positioned for long term growth and reiterate buy rating on HDFC Life Insurance Company Ltd. With a target price of Rs 710 per share.
Hindustan Unilever | Target: Rs 2,422 | Return: 21 percent
While current macro-economic conditions is likely to keep subdued demand in near term, we remain optimistic that the company will outgrow the industry. HUL being the largest FMCG Company with one of the largest footprints in terms of products and distribution network and its strategy to Target volume growth, should drive healthy growth in medium to long term.
At CMP the stock is trading at 69.0x FY20E EPS and 60.0x FY21E EPS. We recommend buy on the stock with a Target price of Rs 2,422 per share.
Brokerage: SMC Global GHCL | Target: Rs 227 | Return: 14 percent
GHCL has an established position in the domestic soda ash industry and its recent expansion and plans to further expand its chemicals and textile business are likely to support its overall margins and returns. The company is optimistic about the Home Textiles division and according to the management of the company, the chemicals business has performed well, despite a slow demand in growth and increase in supply which has led to some pressure on pricing.
The textile performance has also been satisfactory and in line with expectations despite significant impact of US-China trade war. The company has been striving for judicious capital allocation and the last six months have witnessed a reduction in its debt. We expect the stock to see a price target of Rs 227 in 8 to 10 months time frame on an expected P/E of 4.5x and FY21E earnings of Rs 50.45.
Brokerage: BP Equities CRISIL | Target: Rs 2,023 | Return: 18 percent
CRISIL is the India’s largest credit rating agency with a strong global parentage (S&P owns 68 percent of the entity) and a diversified business model. Further, its premium brand value, revival in research vertical, increasing traction in advisory segment and improvement in the number of issuance for bank loan ratings would enable to drive growth.
On valuation front, we believe its revenue and PAT has a potential to grow by 4 percent and 9 percent CAGR respectively for FY19-21E. Owing to the above factors, we assign a Buy Rating on the stock with a Target price of INR 2,023 implying a P/E multiple of 38x on FY21E.