Market Live: Sensex, Nifty Bank up 300 pts; Bajaj Finance pips Axis Bank on market cap
If you have surplus funds, and a time frame of over 12-24 months, this is the time to increase the allocation to equities, Hemang Jani, Head - Advisory, Sharekhan, said in an exclusive interview with Moneycontrol’s Kshitij Anand.
Q) What has led to the correction globally?
A) A spike in interest rates in the US, as well as inflation concerns, led to an initial sell-off in global markets, which got accentuated by overbought positions. The contagion has spread to other asset classes (Bitcoin, base metals, crude etc.) and most emerging markets which is usually the case.
Q) How much correction can we expect in our markets?
A) The fact is that markets were not prepared for a large sell-off and there was a bit of complacency and exuberance across equity markets which were reflected in the low IVs (Implied volatility, which has reversed in past couple of days). Let’s look at historical correction patterns.
Q) Should investors buy into this correction?
A) If you have surplus funds and have a time frame of over 12-24 months, this is the time to increase the allocation to Equities as we have seen a meaningful correction in the market after a long time. We see this as an opportunity for retail investors as this is happening at a time when there is earnings growth revival is seen across companies after a gap of almost 3 years.
Q) Stocks to buy for investors with a time frame of over 12 months.
A) We have shortlisted stocks which have been part of our research coverage, have reported good numbers in December quarter and has upside potential of over 15%. It’s time to go shopping in a staggered manner to take advantage of the volatility.
Q) What are the stocks that investors can buy in a volatile market like this?
A) We have about 18 stocks which we think are fundamentally sound and can be attractive buys at current levels:
UPL: On the cusp of cyclical recovery: Target Rs980| Support 630| Return 35%
The management has retained its guidance of 8-10 percent growth in revenue and 50-75 BPS expansion in EBITDA margin for FY2018.
The global agrochemical industry is expected to improve going ahead given the expected cyclical recovery in CY2018, led by decreasing channel inventories in key regions and some uptick in agri commodity prices.
UPL is better placed to benefit from this recovery over the next 2-3 years. The key geographies of LATAM, India and North America to report healthy growth in the near-term.
Arvind: Target Rs500| Support Rs350| Return 23%
Arvind posted decent performance in Q3FY2018 with revenues and PAT growing by 16 percent and 8 percent respectively. The December quarter was yet another quarter of strong performance by Branded & Retail business of Arvind with 24 percent growth in revenues and more than 300BPS improvement in the OPM. Demerger into separate entities will enhance shareholders value in near future.
V-Guard: Target Rs265| Support Rs201| Return 18%
The electrical and consumer division drive revenue growth in Q3FY18. A number of initiatives are underway to accelerate revenue growth from non-south markets.
Higher focus on above the line spending will consolidate its position as a pan-India player. The company has a cash-rich balance sheet and robust return ratios justify a premium valuation of V-Guard.
HDFC Ltd: Target Rs2200| Support Rs1680| Return 22%
The mortgage lender reported strong Q3FY18 results with robust operating performance and steady spreads and NIMs. It reported a strong loan book growth of 19.3 percent YoY and 5.6 percent Q-O-Q growth. HDFC’s attractive bouquet of associates/subsidiaries provides further value.
Godrej Consumer: Target Rs1250| Support Rs900| Return 21%
For the December quarter, GCPL registered a strong bottom-line growth of 23.8 percent driven by 210BPS expansion in the OPM.
The domestic business registered strong comparable revenue growth of 17% with the soap segment and hair colour segment growing by 24 percent and 33 percent respectively (on a comparable basis) during the quarter.
Recovery in rural demand, addition to product portfolio will aid further revenue growth on the domestic front while improvement in African and Indonesian businesses will spur international business ahead in the forthcoming quarters.
Yes Bank: Target Rs410| Support Rs306| Return 22%
Yes Bank reported strong operating performance in Q3FY2018. The asset-quality performance of the bank has recovered well. The stock is trading at 2.7x its FY2019E BV, which is reasonably valued.
Ashok Leyland: Target Rs157| Support 118| Return 18%
The company reported a double-digit growth in MHCV which is likely to continue. Ashok Leyland Limited (ALL) the key beneficiary as MHCV which contributes 70 percent towards its revenues.
ALL is set to grow in the LCV business and plans to launch a new product every quarter. Earnings of ALL are expected to grow by robust 20 percent in FY2018-FY2020.
Supreme Industries: Target Rs1450| Support Rs1102| Return 21%
Supreme Industries Limited (SIL) delivered strong results for the quarter, led by healthy volumes across segments and improvement in profitability.
We remain positive on SIL, as the company is a prime beneficiary of the unorganised to organised shift in the GST regime. Looking at the strong long-term triggers and earnings CAGR of 29 percent over FY2018-FY2020E, we maintain our Buy rating on the stock.
Relaxo Footwear: Target Rs735| Support Rs550| Return 22%
Relaxo registered a strong performance in Q3FY2018, with revenue and PAT growing in double digits. GST is proving to be beneficial for the organised footwear industry due to the shift in demand from the unorganised industry.
Superior footwear portfolio, distribution expansion (through franchisee route) and strong brand presence would improve the growth prospects of the company in the long run.
Persistent Systems Ltd: Target Rs900| Support Rs708| Return 15%
We upgrade our rating to buy from Hold earlier, given the strong focus of Persistent Systems Limited (PSL) on enterprise digital transformation and improving operating performance in the coming years.
PSL reported better-than-expected earnings performance, led by higher operating performance and lower tax expenses.
The management remains hopeful for revenue acceleration in FY2019, given the strong digital deal pipeline. Margins are likely to improve through operational efficiencies and improving profitability in IBM IOT partnership and Accelerite business.
Thomas Cook: Target Rs270| Support Rs203| Return 11%
TCIL posted strong performance in Q3FY2018 with 51.2 percent growth in revenue and 129 bps expansion in its operating profit margin to 4 percent.
The company’s travel and related services business and HR business registered strong performance in Q3 with revenues growing 63.1 percent and 48.5 percent, respectively (largely led by inorganic initiatives).
Bajaj Finance Ltd: Target Rs1900| Support 1510| Return 16%
Bajaj Finance (BAF) posted strong operational performance during Q3FY2018. The company continued to report healthy growth momentum.
The asset quality remained steady for the quarter. We believe the ability of BAF to carve out various products in niche categories and prudent management practices would help it to keep business growth in the higher trajectory.
Shree Cement: Target Rs19600| Support Rs15705| Return 16%
For Q3FY2018, Shree Cement reported adjusted net profit growth of 24.5% y-o-y due to lower interest and depreciation.
The cement segment was affected by higher power and freight costs. The power segment reported improved YoY performance due to higher volumes and realisation.
L&T: Target Rs1520| Support Rs1185| Return 13%
In Q3FY18, L&T delivers margin expansion and strong bottom line growth due to cost curtailment and robust execution capabilities.
L&T is the best play on the domestic capex cycle recovery and will be able to enhance order book growth given its execution efficiency.
HCL Technologies Ltd: Target Rs1050| Support Rs870| Return 12%
Revenue growth surprised positively for the quarter ended December, led by strong growth in E&RD services, margin performance remains stable QoQ.
The management reiterated at achieving the lower end of the revenue guidance for FY2018E. Expect organic revenue growth to rebound in FY2019E, led by strong order booking.
Industry-leading revenue growth and stable margin execution provide comfort on valuations, among top-tier IT companies.
HUL: Target Rs1440| Support Rs1220| Return 7%
In Q3FY2018, revenue and PAT of Hindustan Unilever Limited (HUL) grew by 17 percent and 30 percent, respectively, on a like-to-like basis, ahead of our as well as street expectation.
The volume growth of the domestic business improved to 11 percent and is expected to sustain at 8-10 percent on account of normalisation in the business environment and recovery in rural demand.
Inox Leisure: Target Rs320| Support Rs225| Return 6%
INOX Leisure Limited (ILL) delivered impressive earnings performance in Q3FY2018, which was also the third consecutive quarter of strong ad revenue growth.
Operating metrics gained strong momentum. The company delivered healthy growth in ad revenue and spends per head in F&B in 9MFY2018. We expect earnings to report impressive 27% CAGR over FY2018-FY2020E.
Infosys: Target Rs1180| Support Rs1000| Return 7%
Infosys has reported an in-line set of numbers for Q3FY2018, with constant currency (CC) revenue up 0.8% q-o-q and EBIT margin at 24.3%.
The new CEO will lay out the strategic priorities in April, while President Rajesh Murthy, who manages operations of Europe (25% of total revenue) quits.
The management hopes for a pick-up in spends by BFSI clients in CY2018, led by ramp-up deals in insurance and higher digital adoption by clients.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.