Benchmark indices, the Sensex and the Nifty50, hit all-time highs by the first week of June on the back of better than expected outcome of the general elections as the ruling NDA government returned to power with an even bigger majority than 2014. However, post the initial euphoria, all indices came under pressure on the back of profit-booking.
Further, the budget announced on July 5 prompted a major market sell-off after finance minister Nirmala Sitharaman announced changes in shareholding norms, tax on buybacks for listed companies and a surcharge on FPIs.
Tight fiscal and monetary policy over the past few years coupled with major structural changes have taken a toll on growth which was further exacerbated post the IL&FS crisis and its fallout. In order to stimulate growth, the RBI in its third bi-monthly meeting for CY19 announced a 25 bps rate cut in the benchmark repo rate to 5.75 percent.
"Given very low inflation of 3 percent, we expect at least another 50 bps rate cuts by the RBI over the next 6-9 months," said Angel Broking in a report.
Going ahead, monsoon remains a major source of concern and any further escalation in the US-China trade war could further hurt global growth and is a risk to the Indian economy as well.
With that in mind, Angel Broking has picked top stocks which will give 6-77 percent returns in the near term.
"We recommend our top picks as it has outperformed the benchmark BSE100 significantly since inception. All of our top picks are backed by a sound business model and are likely to do well in the coming years. We continue to remain positive on consumer (both discretionary and non-discretionary) space and private sector banks (both corporate and retail)," the brokerage added.
Here are the top picks by Angel Broking: Jindal Steel & Power Ltd | Target Price: Rs 250 | Upside: 77.5 percent
Owing to continuous demand of steel from infrastructure, housing and auto sectors along with limited addition of steel capacity in the near term and favourable government policies, the brokerage expects JSPL’s utilisation to improve to 80-85 percent by FY20 along with a reduction in debt led by improving in profitability.
Mahindra & Mahindra | Target Price: Rs 1,050 | Upside: 57.6 percent
The brokerage expects M&M to report net revenue CAGR of 9 percent to over FY2019-FY21 mainly due to healthy growth in automobile segments like utility vehicles and strong growth in tractors segment driven by a strong brand recall and improvement in rural sentiment. Further on the bottom-line front, they expect CAGR of 9 percent on the back of margin improvement.
Safari Industries | Target Price: Rs 1,000 | Upside: 50.8 percent
Safari Industries Ltd (Safari) is the third-largest branded player in the Indian luggage industry. Post the management change in 2012, Safari has grown its revenue 6 times in the last 7 years by foraying in many new categories like backpack, school bags, and improvement in the distribution network.
The brokerage expects it to maintain over 9 percent margins from FY2018 onwards led by regular price hikes, shift towards the organised players and favourable industry dynamics.
Aurobindo Pharma | Target Price: Rs 890 | Upside: 45.7 percent
"Aurobindo has a robust pipeline and is investing to enhance its foray into complex generic and biosimilar, which will drive its next leg of growth. We expect Aurobindo to report net revenue CAGR of 22 percent and net profit to grow at 19 percent CAGR during FY2018-20, aided by acquisitions. Valuations of the company are cheap v/s its peers and own fair multiples of 17-18 times," the brokerage said.
Aditya Birla Capital | Target Price: Rs 130 | Upside: 41.3 percent
Aditya Birla Capital (ABCL) is one of the most diversified financial services entities, with a presence in non-bank financing, asset management, housing finance, insurance, and advisory businesses. The brokerage expects financialisation of savings, increasing penetration in insurance and mutual funds would ensure steady growth. Further, Banca tie-up with HDFC Bank, DBS, and Lakshmi Vilas Bank should restore insurance business.
Shriram Transport Finance | Target Price: Rs 1,470 | Upside: 37.7 percent
Angel Broking expects assets under management to grow at CAGR of 15 percent over FY2019-21 led by pick up in infra/construction post-2019 elections, macro revival and ramping up in rural distribution. "Q1FY19 onwards asset quality started witnessing steady improvement, and we expect this trend to continue," it said.
Maruti Suzuki | Target Price: Rs 8,552 | Upside: 30.4 percent
Maruti Suzuki continues to hold 52 percent market share in the passenger vehicles. The launch of exciting models has helped the company to ride on the premiumisation wave that is happening in the country. In the last two years, the company has seen improvement in the business mix with the pie of the utility vehicles growing from 4 percent to current 15 percent, Angel Broking said.
"Due to the favourable business mix, the company has also been seeing improvement in the margins. The company has already moved from 11-12 percent. Together with higher operating leverage at Gujarat plant, increasing Nexa outlets, and improving the business mix, we believe that the company has further room to improve its margins," it added.
KEI Industries | Target Price: Rs 612 | Upside: 28.5 percent
KEI’s current order book stands at Rs 3,866 crore and it grew by 28 percent in the last 3 years due to strong order inflows from State Electricity Boards, PowerGrid, etc.
KEI’s consistent effort to increase its retail business from 30-32 percent of revenue in FY18 to 40-45 percent of revenue in the next 2-3 years on the back of strengthening the distribution network and higher ad spend, the brokerage said.
Parag Milk Foods | Target Price: Rs 330 | Upside: 26.8 percent
Parag Milk Foods (PARAG) is one of the leading dairy products companies in India. The company has been successful in creating strong brands like GO, Gowardhan and in introducing new products like Whey Protein.
"Value Added Products like cheese, whey protein enjoy higher gross margins of 25-45 percent versus 6-8 percent entailed in liquid milk. Driven by recently launched products and a higher share of value-added products, its operating margins would improve in the next few years," the brokerage said.
RBL Bank | Target Price: Rs 775 | Upside: 18.7 percent
RBL Bank has grown its loan book at healthy CAGR of 53 percent over FY10-19. The brokerage expects it to grow at 35 percent over FY19-21. With adequately diversified, well-capitalised balance sheet, the bank is set to grab market share from corporate lenders, it added.
TTK Prestige | Target Price: Rs 7,708 | Upside: 15.7 percent
TTK Prestige is the leading brand in kitchen appliances with over 40 percent market share in organised market. It has successfully transformed from a single product company to a multi-product company offering an entire gamut of kitchen and home appliances.
The brokerage expects to double its revenue in the next five years backed by the revival in consumption demand, new 6 crore LPG connections under the Ujjawala Scheme, inorganic expansion and traction in exports.
GMM Pfaudler| Target Price: Rs 1,570 | Upside 15.2 percent
GMM Pfaudler Limited (GMM) is the Indian market leader in glass-lined (GL) steel equipment used in corrosive chemical processes of agrochemicals, specialty chemical, and pharma sector. The company is seeing strong order inflow from the user industries which is likely to provide over 20 percent growth outlook for the next couple of years, Angel Broking said.
Blue Star | Target Price: Rs 867 | Upside: 12.9 percent
Blue Star is one of the largest air-conditioning companies in India. With a mere 3 percent penetration level of ACs versus 25 percent in China, the overall outlook for the room air-conditioner (RAC) market in India is favourable, the brokerage said.
Aided by increasing contribution from the Unitary Products, It expects the overall top-line to post revenue CAGR of 13 percent over FY2018-20 and margins to improve from 5.8 percent in FY2018 to 6.2 percent in FY2020.
Bata India| Target Price: Rs 1,643 | Upside: 12.7 percent
Bata India Ltd is the largest footwear retailer in India, offering footwear, accessories, and bags across brands like Bata, Hush Puppies, Naturalizer, Power, etc. Further, over the last 3 years, the company has added 135 stores. Going forward, the company has plans to open 500 stores mainly in tier-II and tier-III cities over the next 4-5 years.
"We expect Bata to report net revenue CAGR of 17 percent over FY2019-21 mainly due to increasing brand consciousness amongst Indian consumers, new product launches and focus on women’s segment. Further, on the bottom-line front, we expect CAGR of 18 percent on the back of margin improvement," the brokerage said.
ICICI Bank | Target Price: Rs 490 | Upside: 12.2 percent
ICICI bank has taken a slew of steps to strengthen its balance sheet. Measures such as incremental lending to higher-rated corporate, reducing concentration in few stressed sectors and building up the retail loan book. The share of retail loans in overall loans increased to 60 percent (Q4FY19) from 38 percent in FY12, Angel Broking said.
"The gradual improvement in recovery of bad loans would reduce credit costs that would help to improve return ratio. The strength of the liability franchise, a shift in loan mix towards retail assets and better-rated companies, and improvement in bad loans would be a key trigger for multiple expansion," it added.
Amber Enterprises India Ltd. (Amber) is the market leader in the room air conditioners (RAC) outsourced manufacturing space in India. It currently serves eight out of the ten top RAC brands in India. The brokerage expects Amber to report consolidated revenue and profit CAGR of 23 percent and 41 percent, respectively over FY2018-20. Its growing manufacturing capabilities and scale put it in a sweet spot to capture the underpenetrated RAC market in
Amber Enterprises | Target price: Rs 910 | Upside: 10 percent
HDFC Bank | Target Price: Rs 2,660 | Upside: 6.6 percent
Steady NIM of 4.4 percent on the back of lower cost of funds and lower credit cost will ensure healthy return ratios for the company. Despite strong growth, the company has maintained stable asset quality and the brokerage expects the company’s loan growth to remain 22 percent over next two years and earnings growth is likely to be more than 21 percent.
"HDFC bank’s subsidiaries, HDB Financial Services (HDBFS) and HDFC Securities continue to contribute well to the bank's overall growth. Strong loan book, well-planned product line, and clear customer segmentation aided this growth," it added.
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