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These top diwali picks by IDBI Capital may give up to 65% upside in a year

Updated : 2019-10-15 10:01:54

The Nifty50 index has gained 6.6 percent, while the Sensex has surged 8 percent since Diwali last year on November 7, 2018. Despite a sombre mood in the last 1 year due to economic slowdown, subdued earnings, liquidity crisis, asset quality concerns, FII outflow, corporate governance issues, and global growth fears amid endless US-China trade tensions etc, benchmark indices have seen gains led by a rally in blue-chip stocks. Experts feel the period between Diwali 2019 and Diwali 2020 could see the market recover and earnings rebound if demand improves in the current festive season. For Diwali 2019, IDBI Capital suggests buying these stocks, which can see an upside of up to 65 percent with a holding period for 12-months.

<strong>Tata Elxsi</strong>: Tata Elxsi provides design and technology services for product engineering and solutions across industries including Broadcast, Communications, and Automotive. The company's Elxsi’s, the automotive business contributes to 51 percent of its total revenue. Within the automotive vertical, 60 percent of revenue comes from Europe, 30 percent from the US, 10 percent from Japan, and Korea. The brokerage believes that the stock has strong re-rating potential as the growth improves in the second half of FY20 and FY21. It also has a cash surplus of Rs 500 crore.
Tata Elxsi: Tata Elxsi provides design and technology services for product engineering and solutions across industries including Broadcast, Communications, and Automotive. The company's Elxsi’s, the automotive business contributes to 51 percent of its total revenue. Within the automotive vertical, 60 percent of revenue comes from Europe, 30 percent from the US, 10 percent from Japan, and Korea. The brokerage believes that the stock has strong re-rating potential as the growth improves in the second half of FY20 and FY21. It also has a cash surplus of Rs 500 crore.
<strong>Reliance Nippon Life Asset Management:</strong> Reliance Nippon Life Asset Management Company is one of the largest AMCs in India with MF assets under management (AUM) AUM of Rs 2.3 lakh as of March 2019. The company has a total AUM of Rs.4.3 lakh crore, which has grown at an 18 percent CAGR in the last 10 years. Of all the financial savings products, mutual funds are the most under-penetrated in India with an AUM/GDP of 12 percent, against a global average of 55 percent, the brokerage said. However, there has been a rise in the proportion of mutual funds as an investment option from 1.4 percent in FY12 to 2.9 percent in FY16, which may benefit the firm.
Reliance Nippon Life Asset Management: Reliance Nippon Life Asset Management Company is one of the largest AMCs in India with MF assets under management (AUM) AUM of Rs 2.3 lakh as of March 2019. The company has a total AUM of Rs.4.3 lakh crore, which has grown at an 18 percent CAGR in the last 10 years. Of all the financial savings products, mutual funds are the most under-penetrated in India with an AUM/GDP of 12 percent, against a global average of 55 percent, the brokerage said. However, there has been a rise in the proportion of mutual funds as an investment option from 1.4 percent in FY12 to 2.9 percent in FY16, which may benefit the firm.
<strong>Indian Hotels</strong>: Indian Hotels plans to add 15 new hotels every year, mostly through the management contract route and has signed 22 new contracts in FY19 and 7 in Q1FY20. the brokerage believes, with 65 percent industry occupancy, there are early signs of revival in the hospitality industry, which will drive growth. The company would be a key beneficiary, considering its strong positioning in the domestic market and well-planned expansion plan, it added.
Indian Hotels: Indian Hotels plans to add 15 new hotels every year, mostly through the management contract route and has signed 22 new contracts in FY19 and 7 in Q1FY20. the brokerage believes, with 65 percent industry occupancy, there are early signs of revival in the hospitality industry, which will drive growth. The company would be a key beneficiary, considering its strong positioning in the domestic market and well-planned expansion plan, it added.
<strong>Finolex Industries:</strong> Finolex incorporated in 1981, is one of the largest PVC pipes and fittings manufacturers in the domestic market with a capacity of 3.7 lakh MT capacity. According to the brokerage, currently, 30 percent of pipe segment revenue comes from the Housing PVC segment and to increase its footprint in housing, the company plans to add capacity in piping and fitting segment by 35 percent over the next 3 years to cater growing demand. The company is transforming its business model from B2B to B2C and the mix value-added products to push up margins in the pipe segment to low double digits, it added.
Finolex Industries: Finolex incorporated in 1981, is one of the largest PVC pipes and fittings manufacturers in the domestic market with a capacity of 3.7 lakh MT capacity. According to the brokerage, currently, 30 percent of pipe segment revenue comes from the Housing PVC segment and to increase its footprint in housing, the company plans to add capacity in piping and fitting segment by 35 percent over the next 3 years to cater growing demand. The company is transforming its business model from B2B to B2C and the mix value-added products to push up margins in the pipe segment to low double digits, it added.
<strong>ITC:</strong> Established in 1910, ITC is India's top cigarette maker but has diversified like FMCG, luxury hotels, paper, and agribusiness. The brokerage notes that despite an improvement in volume growth in FY19, ITC’s quarterly earnings were below consensus expectations, which was due to escalation in tobacco cost which led to a contraction in EBIT margins. It believes that ITC is now well poised to take a moderate price hike and consequently support acceleration in EBIT.
ITC: Established in 1910, ITC is India's top cigarette maker but has diversified like FMCG, luxury hotels, paper, and agribusiness. The brokerage notes that despite an improvement in volume growth in FY19, ITC’s quarterly earnings were below consensus expectations, which was due to escalation in tobacco cost which led to a contraction in EBIT margins. It believes that ITC is now well poised to take a moderate price hike and consequently support acceleration in EBIT.
<strong>HDFC Life</strong>: According to the brokerage, HDFC Life maintains a diversified product mix across protection, savings, and retirement lines. Recent strategies largely focus on growing Protection portfolio as it is margin accretive which resulted in an increase in improvement its over-all new business margins from 19.9 percent in FY16 to 24.6 percent in FY19, it added. The brokerage also notes that HDFC Standard Life insurance has a strong parentage and a very reputed brand name which enables it to attract and gain new business from potential customers.
HDFC Life: According to the brokerage, HDFC Life maintains a diversified product mix across protection, savings, and retirement lines. Recent strategies largely focus on growing Protection portfolio as it is margin accretive which resulted in an increase in improvement its over-all new business margins from 19.9 percent in FY16 to 24.6 percent in FY19, it added. The brokerage also notes that HDFC Standard Life insurance has a strong parentage and a very reputed brand name which enables it to attract and gain new business from potential customers.
<strong>ICICI Bank:</strong> ICICI Bank is a leading private sector bank in India, with consolidated assets in excess of Rs 12.5 lakh crore. It currently has a network of 4,882 branches and 15,101 ATMs across India. According to the brokerage, the lender's incremental NPA is moderating with slippages trending lower in the last 4-5 quarters. The below investment grade book stands currently at 2.6 percent of loans versus 4.8 percent in Q1FY19, it added.
ICICI Bank: ICICI Bank is a leading private sector bank in India, with consolidated assets in excess of Rs 12.5 lakh crore. It currently has a network of 4,882 branches and 15,101 ATMs across India. According to the brokerage, the lender's incremental NPA is moderating with slippages trending lower in the last 4-5 quarters. The below investment grade book stands currently at 2.6 percent of loans versus 4.8 percent in Q1FY19, it added.
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