July has been outstanding for the market as the Sensex hit a fresh record high of 36,740.07 and the Nifty reclaimed the psychological 11,000-mark for the first time since February 1. Hopes of a recovery in June quarter earnings and stability in the rupee-dollar and crude oil prices propelled the market higher.
The earnings season started last week on a positive note as Tata Consultancy Services and IndusInd Bank reported a healthy set of earnings while Infosys met analyst expectations. Even Hindustan Unilever reported a robust set of numbers, though partly on a low base.
The Sensex started off the week in the negative, falling more than 200 points, which was largely due to profit booking in stocks that led the market higher last week.
That does not mean bulls are off track. The current correction was part of the bull run and was largely due to carnage in mid- and smallcaps. The Nifty may reclaim its earlier record high of 11,171 seen in January, though in the short term it may be rangebound, experts said.
"Continuous decline on the broader front has pushed stocks to the extreme oversold zone, so we may see some pause or rebound prior to the further slide," Jayant Manglik, president, Religare Broking, said.
Hemang Jani, head - advisory, Sharekhan, believes the markets may be volatile in the short term owing to global trade concerns.
Manglik advises investors to avoid catching falling knives and wait for clarity. "Investors should see this correction as an opportunity and gradually start adding fundamentally sound stocks with a long term view as they're now available at a good bargain," he said.
Jani said any major declines should be used as an opportunity to get into quality names in the consumption and financials space.
Here is the list of stocks on which brokerages have initiated coverage in July. These stocks return up to 40 percent over a 1 year period: Jamna Auto IDBI Capital - Buy | Target - Rs 107 | Return - 23%
IDBI Capital has initiated coverage with a Buy rating on the stock and a target price of Rs 107, citing upswing in commercial vehicle (CV) cycle.
The company is a big beneficiary of upswing in CV cycle. Demand for parabolic spring will raise due to higher tonnage trucks.
We believe the opportunity for increase in content per vehicle is enormous. Increase in truck axle load by 20-22% would help boost after-sales segment.
Medium and heavy commercial vehicle (M&HCV) tonnage growth is expected to outpace volume growth. The big push to infrastructure projects is a key demand driver in mid-term.
We expect revenue, EBITDA and net profit growth rate at 19%, 25% and 30% respectively over the fiscal 2018-2020.
Radico Khaitan HDFC Securities - Buy | Target - Rs 473 | Return - 40%
Radico Khaitan is an attractive play in the IMFL (Indian-made foreign liquor) space with around 2 crore cases sales (6.5-7% market share).
Optimism on Radico is premised on (1) Its strong presence in fast growing and niche segment of Vodka (around 50% share) and super premium Brandy. Prestige and above constitutes around 20% of its total revenue but 50% of its EBITDA, leaving significant headroom for Radico to premiumise, (2) CSD sales at around 17% in the IMFL revenue, with high entry barriers, (3) Captive ENA manufacturing in largest sugar producing state of UP that provides raw material tailwinds, and (4) Balance sheet deleveraging.
Net debt/EBITDA declined from 5x in FY15 to 2x in FY18.
We expect revenue, EBITDA and net profit growth rate at 10%, 14% and 24% respectively over the fiscal 2018-2020.
Reliance Industries Credit Suisse - Outperform | Target - Rs 1,180 | Return - 10%
Credit Suisse has initiated coverage with Outperform rating on the stock and target price at Rs 1,180 per share, citing significant potential in consumer businesses.
Reliance Jio has potential to create significant value and is much more than telecom.
Petcoke gasification should help growth in refining.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd. Sterlite Technologies IDFC Securities - Outperformer | Target - Rs 370 | Return - 27%
IDFC Securities has reinitiated coverage with Outperformer rating and a price target of Rs 370 on Sterlite Technologies.
Data boom and higher mobile traffic will boost fibre demand. Order book provides earnings visibility.
We expect revenue, EBITDA and net profit to compound at 30%, 27% and 32% respectively over the fiscal 2018-2020.
Strong competitive advantages, growth visibility and healthy return ratios warrant premium valuations.
Two-Wheelers space Hero MotoCorp Centrum Research - Buy | Target - Rs 4,245 | Return - 24% Bajaj Auto Centrum Research - Buy | Target - Rs 3,413 | Return - 10%
Two-wheeler sector opportune investment plays are backed by potential catalysts. Favourable macros, good monsoons, rising income level and government focus on rural economy are key positives.
Three-wheeler space is in sweet spot with new permits and recovering exports. Honda is the strongest in two wheelers, but Hero is well positioned.
Bajaj Auto is a fair play on premiumisation, rising exports and strong three wheeler prospects.
We have initiated coverage with Buy rating and target price of Rs 4,245 on Hero MotoCorp and Buy rating with a price target of Rs 3,413 on Bajaj Auto.
AU Small Finance Bank CSEC Research - Outperformer | Target - Rs 732 | Return - 15%
Improved margins due to falling cost of funds, along with healthy loan book growth should act as a catalyst to spur the earnings growth of the company.
The stock is currently trading at 4.3X P/ABV and 26.6X P/E of FY21E. We initiate coverage on AU Small Finance Bank with a Outperformer rating and arrive at a target price of Rs 732.
We draw comfort from the fact that the recent transaction of Temasek Holdings for acquiring a 5 percent (on revised capital) equity stake at Rs 692.77 per share share, valuing the company at 9.6X P/ABV of FY18.
Risks: Rising competition may put pressure on yields; asset deterioration owing to higher share in riskier segments; state specific issues may have greater impact owing to regional concentration.
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