Markets @ record highs; top ten stocks which can give up to 34% return in 1 year
August, 22nd 2014
The Indian markets have been on a roll of late, hitting fresh record highs consistently, supported by strong global liquidity and easing of geo-political concerns.
The 50-share Nifty index managed to hit a fresh record high of 7929.05 on 22 August 2014, while the Sensex recorded its fresh lifetime high of 26,508.27 on 19 August 2014.
Most analysts do not see many triggers which can lead to a big fall in the markets, but given the fact that we are trading at the higher end of the range or near-key resistance levels, some bit of consolidation or correction cannot be ruled out.
However, the broader trend remains to be on the upside. Given the momentum that we have seen in the Indian markets, analysts see the Nifty touching 8000-8200 levels by December-end.
And for the Sensex, the rally may extend to 27000-28000 in the same period, but beyond that the market would require additional triggers to move forward.
"I would assume the market will still be range-bound for the time being, given the fact that valuations are at the upper end of the historical trading band," said Sanjeev Prasad, Senior Executive Director & Co-Head, Kotak Institutional Equities.
"If you look at BSE 30 index on a 12-month forward basis, it is already at about 15.5 times, not very different from what you see historically. Band is more like 12.5 to 16-16.5 times. So we are pretty much at the upper end of the trading band," he added.
Prasad is of the view that the scope for re-rating is looking a little big difficult given the fact that most of the stocks have gone up pretty significantly without any meaningful change in the fundamentals as yet or without any meaningful upgrades to earnings so far.
However, analysts are of the view that the party on Dalal Street is likely to carry for some more time aided by strong global liquidity and reform push by the newly-elected Modi government.
On Thursday, Deutsche Bank in its latest report reiterated its positive view on the Indian markets and is confident that the government will move towards big bang reforms progressively.
The global investment bank sees the Sensex touching 28000 by December 2014 end, which translates into an upside of 6.2 per cent from Wednesday's closing value of 26360.11. We have collated list of ten stocks from different brokerages which can deliver up to 34% return in the next 12 months: Markets @ record highs; top ten stocks which can give up to 34% return in 1 year Markets @ record highs; top ten stocks which can give up to 34% return in 1 year Cox & Kings: Target price set at Rs 360 (Motilal Oswal)
With the recent sale of camping business, Motilal Oswal believes Cox & Kings is on the path of deleveraging its balance sheet with the net debt/equity expected to reduce from 2.4x in FY14 to 1x in FY17E.
They believe that Cox & Kings has a balanced portfolio now both in India and international business across categories, which is synergetic to post 30 per cent PAT CAGR over FY15E-17E.
The stock trades at 13.6x FY15E and 10.1x FY16E earnings. It values Cox & Kings at 14x FY16E earnings of INR25.7, with a Buy rating and target price of Rs 360.
Britannia Industries: Target price set at Rs 1320 (Motilal Oswal)
Visible improvement in business fundamentals such as operating margins, return on equity and cash flow from operations and responsive management have driven BRIT's re-rating over the past 18 months.
The brokerage firm expects this re-rating to sustain and gather steam as it premiumizes portfolio and drives cost efficiencies, aiding further margin expansion. As emphasized in its earlier notes, the key change for BRIT compared to three years ago is the ability to defend margins despite unfavorable RM movement.
Monsanto India Ltd: Target price set at Rs 2300 (Motilal Oswal)
Motilal Oswal expects revenue to grow at 17 per cent CAGR and PAT at 23 per cent CAGR over FY14-16. They have downgraded their earnings estimates by 25 per cent for FY15 and by 14 per cent for FY16 to factor in lower than expected growth.
The brokerage firm believes investments made during FY09-12 will start paying off for MCHM in terms of new product launches and market share gains. They remain excited about the huge potential in genetically-modified (GM) foods and MCHM's Roundup Ready Flex.
As per the report, lower than expected earnings led by a poor monsoon could result in a correction in the stock price in the near term, which should be utilized as a buying opportunity.
Kaveri Seeds Company: Target price set at Rs 1045 (Motilal Oswal)
The brokerage firm has upgraded their estimates for FY15E by 3 per cent given the increasing popularity of ATM and Jadoo which will drive the market share gain going forward.
They expect KSCL to be a market leader in the cotton segment in FY16, which should lead to a re-rating in the multiple, going forward. The stock trades at 18.6x and 14x FY15E and FY16E respectively.
ICICI Bank Ltd: Target price set at Rs 1875
Healthy core operations driven by gradual NIM improvement and strong control over opex are leading to strong core ROAs of over 1.6 per cent despite moderate fee income.
Improvement in macro-economic environment and resolution of infrastructure bottle-necks shall lead to reduction in NSL. ICICI Bank is well positioned to leverage onto opportunities with core ROA of 1.6 per cent, strong distribution network and capitalization. Infosys: Target price Rs 4,040 (Prabhudas Lilladher)
The brokerage firm expects new strategic initiatives to be announced by Infosys under the new leadership of Dr. Vishal Sikka. However, in the near term, it sees more tailwinds for margins to be played out in FY15. It sees no downside risks to its estimates. It has revised its target price to Rs 4,040 (from: Rs 3,920), 17x FY16e earnings estimate.
Underlying macros remain challenging impacting financials but the brokerage firm sees limited risks to earnings growth as the bank sweats out its branches further and credit costs will get cushioned by floating buffer.
Though profit growth levels have moderated, RORWAs have inched to an all-time high of over 2.6 per cent on improved operating leverage. With intended capital raise, balance sheet will strengthen and improve RoAs further as revenue momentum will start picking up and opex costs increase will be gradual.
State Bank of India: Target price Rs 3,000 (Prabhudas Lilladher)
SBI's asset quality has improved on some ARC sales and better recoveries, though slippages are still high but overall stress seems to be diminishing bringing stability to asset quality.
Opex efficiencies are now kicking in on measures of correction in overheads and also is best placed on pension and wage provisions which will keep Opex growth lowest among peers.
SBI is best placed on provisions and less net additions to staff will keep employee expenses under check which will result in lowest Opex growth among peers in FY15.
Whirlpool of India: Target price set at Rs 580 (Microsec Capital)
The company's P/E has been ranging between the levels of negative 3x to 24x in last ten years. Currently the industry P/E is trading at the levels of 38-41x, much higher than the company's P/E of 36.8x.
Also, the 2 year forward industry P/E is expected to trade at 21x as compared to company's P/E of 12x. We have revised the estimates on higher side. Diversification of products in a single segment, launching of new models and rupee appreciation/ stable commodity prices are likely to increase margins.