A new business, a new idea is something that always excites value investors. Indian market did manage to climb all wall of worries and trade back in green for the year 2018 but the same can’t be said for stocks belonging to the mid- and small-cap space.
Even the quality stocks across the board saw selling but the fall was not as severe as compared to other stocks which have lost up to 80% of their value in a matter of just six months.
It looks like the market is adjusting to the new reality of US Fed liquidity withdrawal and India has seen outflows from foreign institutional investors segment. Earnings have failed to pick up while trade war fears have capped upside for markets not just for India but across the globe.
On a year-to-date (YTD) basis, many stocks have corrected but quality stocks have declined lesser. Amid the carnage, high-quality names, especially within midcaps, haven’t corrected that much, suggest experts.
The focus of investors should be on buying quality stocks which could withstand the correction and outperform index when the market starts rising.
“While valuations of smallcaps and midcaps have reduced, sharp downward revisions to earnings in the smallcap and midcap space is keeping valuations punchy,” Nitin Bhasin, managing director and head of research at Ambit Capital told Moneycontrol.
“Rather than focusing on stocks which have declined sharply and optically offering a value or bargain, we advise investors to hunt for quality businesses which are investing for building competitive advantages for long-term growth, irrespective of the near-term business environment,” he said.
Here is a list of 5 stocks where brokerages initiated coverage in June for the first time and said that they could give 20-40% returns in the next 12 months: Avanti Feeds: Buy| Target: Rs 1,901, after split Rs 633| LTP: Rs 521| Return 21%
ICICI Securities initiated coverage on Avanti Feeds for the first time with a buy rating and a target price of Rs 1,901. The company is a market leader in shrimp feed and a growing player in shrimp exports.Avanti benefits from
1) numerous moats such as strong brands, established distribution, multiple manufacturing units and sub-segmentation strategy; and
2) relationship with global sea food major, Thai Union.
ICICI Securities expect India’s shrimp exports (value) to grow in mid-teens and Avanti to be a major beneficiary of this trend. With strong financials, the domestic brokerage firm expects Avanti’s earnings growth to resume in FY20E after a decline in FY19E due to lower margins.
Exide Industries: Buy| Target: Rs 322| Return 28%
Centrum Broking initiated coverage on Exide Industries with a buy rating and a target price of Rs 322. Exhaustive channel check with over 125 dealers pan India across the company’s three major brands (Exide, SF Sonic, and Dynex) indicates that the management’s significant efforts to address ground-level issues in the replacement market (which is critical for overall demand and remains the major revenue and profitability driver).
The company’s efforts have translated into positive material difference and a pick-up in momentum across the brands. Further, the meaningful transition expected in commercial vehicle segment towards organized players post GST implementation will prove beneficial for EXIDE.
ICICI Prudential Life Insurance: Buy| Target: Rs 480| Return 26%
Motilal Oswal initiated coverage on ICICI Prudential Life Insurance company with a target price of Rs 480. ICICI Prudential Life Insurance (IPRU) is amongst the market leader in the private sector life insurance space, aided by its strong brand, distribution capabilities, and product portfolio.
It has increased its market share in retail weighted premium to 12% in FY18 (6% in FY12) and has alongside reported sharp improvement in persistency ratios, said the note.
This coupled with a change in product mix in favor of protection business and strong cost control has enabled healthy margin expansion. Motilal Oswal expects margins to improve further to 18.2% by FY20E, boosting average operating RoEV to 20 percent over FY18-20E.
RBL Bank: Buy| Target: Rs 780| Return 40%
ICICI Securities initiated coverage on RBL Bank Ltd with a target price of Rs 780. Investing in a high-growth stock like RBL Bank (RBL) at a time when system loan growth is near historic lows may appear to be a contradiction, but it is allayed by:1) RBL’s relatively small market share of less than 0.5%,
2) The large opportunity presented by the space being vacated by several PSU banks, and
3) Considerable opportunity for RBL to improve its RoA to similar levels as peers.
The global investment bank does not see too many similar instances of small, well-run, high-growth private banks with reasonable assurance of improving RoA.
Amber Enterprises: Buy| Target: Rs 1272| Return 31%
Angel Broking initiated coverage on Amber Enterprises with a buy rating and a target price of Rs 1,272. Amber Enterprises India Ltd. (Amber) is the market leader in the room air conditioners (RAC) outsourced manufacturing space in India.
It is a one-stop solutions provider for the major brands in the RAC industry and currently serves eight out of the ten top RAC brands in India. Angel Broking expects Amber to report consolidated revenue/PAT CAGR of 28%/51% respectively over FY2018-20E.
It is currently trading at 21x FY 2020 earnings which is at 25-30% discount than its closest peer – Dixon Technologies. The recent correction has provided a very good entry point for the investors to take a bet on the booming AC space.
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