Globally too, equity markets have been volatile in last few months since the Covid-19 outbreak, which has become the biggest threat to economies and financial markets. Expectations are that the trend will remain the same till a cure for the pandemic is found.
But equity analysts say the time to pick quality stocks is now, as the risk-reward ratio has turned favourable after the correction.
“Volatility is likely to remain elevated. However, we believe investors should use the reasonable valuations as an opportunity to top up existing investments in a staggered manner,” said Siddharth Sedani, Vice-President for Equity Advisory at Anand Rathi Shares and Stock Brokers.
In a survey conducted by ETMarkets.com, about a dozen brokerages picked their top stock picks, which they felt could emerge as dark horses going ahead.
G Chokkalingam, Founder, Equinomics Research and Advisory
Bombay Burmah Trading: Shares of Bombay Burmah trade at a P/E of around 12 times on consolidated earnings. On a standalone basis, the stock is available at over 80 per cent discount to the current market value of the investment held in Britannia.
Unichem Lab: It is a debt-free pharmaceutical player with significant cash. It is engaged in export formulations and trades at very attractive valuations in terms of enterprise value to its sales. It has taken some equity stakes in two API manufactures and has also started investing substantially in capacity build-up.
Umesh Mehta, Head of Research, Samco Securities
Muthoot Finance: The company could be a good play till gold prices remain alleviated. Consumers are turning towards gold-financing players, as getting personal loans without giving security will become difficult and gold loans will have good traction going forward.
Abbott India: It is a well-managed MNC with a robust balance sheet and order pipeline to sail through the tide.
Bajaj Auto: The auto major could see strong sales with people looking for convenient, reasonable private modes of transport to escape the virus. As a world player, Bajaj exports around half of its sales, which may cushion volumes in case the situation worsens in India and movement is restricted.
Siddharth Sedani, Vice President, Equity Advisory, Anand Rathi Shares and Stock Brokers
HUL: Limited lockdown in rural areas, little disruption of agricultural activities by the lockdown, near normalisation of agro wholesale markets in May, a bumper rabi crop, the bright outlook for Kharif, high MSP, and stimulus measures including cash support augurs well for rural demand. Anand Rathi expects FMCG markets to see substantial normalisation in Q2 FY21 and considering their essential nature, market growth could be in mid-single-digits in FY21.
Alkyl Amines: With improved performance owing to favourable raw material pricing, lower threat of dumping through imports and increased visibility of revenues going ahead, Anand Rathi believes Alkyl Amines should continue to report better performance.
UPL: The company remains well-positioned for long term growth, given its, strong market position, diverse product offering, expectations of reduced debt levels, and decent revenue and cost synergies from Arysta acquisition.
Rusmik Oza, Head of Fundamental Research, Kotak Securities
ICICI Bank: The construct of the loan book, liability franchise and capital adequacy ratio (CAR) gives comfort that ICICI Bank should be one of the better-placed banks to come out of this crisis even if there are a few disappointments in this path.
ITC: The company’s cigarette business now trades at a very high implied post-tax FCF yield. Recently the company has announced an increase in payout ratio which is good for shareholders. The stock is trading at around 15 times on FY22E as compared to the FMCG sector average of around 33x for FY22E. The implied valuation for the cigarette business seems very low considering the consolidated RoE of around 23 per cent. The dividend yield at CMP works to more than 5 per cent. ITC is one of the few FMCG companies which have been able to build and create good brands in various categories in the last few years.
Hemang Jani, Head Equity Strategist, Broking & Distribution, MOFSL
Bharti Airtel: This telecom player has delivered strong execution in the last two quarters, with industry-leading revenue growth, Arpu (Average revenue per user) increase and addition of 4G subscriber. It also has a healthy network capacity versus peers. Arpu improvement was supported by no down-trading despite the recent price hike, increase in postpaid customers and increasing mix of 4G subscribers. Further, Bharti is well placed to drive additional Arpu growth and market share gains given the vulnerability of its peers. This should help the company to generate healthy FCF and subsequent deleveraging in the future. Bharti’s Arpu should touch Rs 200 in the short term and Rs 300 in the long term, which is essential for the telecom business.
HDFC Bank: Business growth of the private lender remains robust despite economic activity getting impacted due to the Covid-19 outbreak. Corporate loan growth remains strong and is driving overall loan growth while retail loan growth remains soft. Although the RBI moratorium supports asset quality, credit cost is expected to stay elevated while provisioning buffers should limit the overall impact on earnings. A strong liability franchise would support margins while higher liquidity levels would enable the bank to ride the current crisis and gain further market share.
Vinod Nair, Head of Research at Geojit Financial Services recommends JSW Steel, Maruti Suzuki and Bajaj Finance.