Trade Nivesh | Nifty may underperform in 2020; ITC, SBI among 15 stocks brokerages are betting on
Most brokerages feel 2020 could be the year for broader markets to do well
The benchmark indices outperformed mid and smallcaps in the past two consecutive years, but that could change in 2020 as the government is widely expected to roll out sops and measures to boost core economy sectors.
Most brokerages feel 2020 could be the year for broader markets to do well with midcap and smallcap indices giving returns in the range of 15-20 percent against 10-12 percent for the Nifty50.
"We believe that the midcaps are likely to lead the rally going forward and largecaps may be rangebound. Overall, the first half should be good for equities though in the second half global markets may worry about a global recession and the equity markets may be rangebound in that part," Karvy Stock Broking said.
Overall, the brokerage expects Nifty to end the markets 10 percent higher at around 13,500 levels and midcaps should be higher by 20 percent to close at 20,500 in 2020.
According to brokerages, FY21 is expected to be better year for earnings as well as economic recovery as the economy is likely to bottom out in second half of FY20.
"We have held the view that Q2 or Q3 is likely to form the bottom of the economy and Q4 is likely to witness a pickup. We believe the recent pick up in markets is on account of the anticipation of a recovery," Karvy said.
Moneycontrol collated 15 stocks that could return more than 20 percent in 2020:
DLF
DLF is India’s largest real estate developer. For the quarter ended 30-09-2019, the company has reported a Consolidated sales of Rs 1,715.51 Crore, up 28.87 percent from last quarter sales of Rs 1,331.19 crore and down 19.80 percent from last year same quarter sales of Rs 2,139.03 crore. Company has reported net profit after tax of Rs 181.51 crore in latest quarter. We believe that the Rs 12,000-crore inventory should liquidate in a three-four year period, depending on the pace of sale. We maintain buy rating after posting an encouraging quarter.
ICICI Prudential
ICICI Prudential is promoted by ICICI Bank and Prudential Corporation Holdings Limited. It commenced operations in 2001 and has consistently been one of the leading private sector life insurance companies in India. It was the first private sector life insurer to cross the Rs 1 trillion mark in assets under management (AUM). Its current total sum assured has crossed Rs 11 trillion. Its presence across channels ensures that it is able to cater to the varied needs of customers across all touch points.
Sun Pharma
Sun Pharma is the 4th largest global specialty generic company. It is ranked 8th in USA / largest Indian Pharma Company in USA. It has 44 manufacturing sites across the world. It has portfolio of more than 2,000 products across the world. The company is enhancing their share of specialty business globally. At the CMP of Rs 454, the stock is trading at P/E multiple of 25x.
JSW Steel
JSW Steel is a flagship company of the JSW Group. It is a leading integrated steel manufacturer. Currently one of the fastest growing companies in India, it has a presence in over 100 countries. JSW is also the first company to manufacture high-strength and advanced high-end steel products for its automotive segments.
As a leader in India’s steel industry, we recommend to buy at current price and accumulate on decline. At the CMP of Rs 273, the stock is trading at P/E multiple of 9.8x only.
ACC
ACC is India's foremost manufacturer of cement and ready mixed concrete with a countrywide network of factories and marketing offices. Established in 1936, it has been a pioneer and trend-setter in cement and concrete technology. Its brand name is synonymous with cement and enjoys a high level of equity in the Indian market.
On expectations that the government's recent push towards infrastructure creation will lead to price hike of cement on the back of increased demand. At the CMP of Rs 1,512, the stock is trading at attractive rate.
GAIL India
GAIL's dominant position in India’s gas pipeline network and its high share of volume in the upcoming eastern corridor pipeline is expected to drive future earnings growth. With the development of the natural gas eco system set to improve domestic volumes, GAIL is expected to benefit from stable global gas prices. Additionally, the new US liquefaction terminals will boost RLNG exports.
HDFC Bank
HDFC Bank's retail loans are largely fixed in nature. Having said that they will be building in interest rate risk spread into the pricing of loans linked to the repo rate. Since spreads have to be locked in for 3 years, they are also checking with RBI whether they can make interest rate risk spreads dynamic in nature which will keep the NIMs at the range of 4-4.4 percent.
We believe HDFC Bank will maintain margins in the range of 4.1-4.3 percent. We remain confident that HDFC Bankwill deliver an-above consensus earnings growth CAGR of 22 percent over FY19-24E and RoA of 2 percent by FY24E (notwithstanding the recent tax cuts), leading market cap to almost double to $200 billion from $100 billion currently.
ITC
The market believes ITC will look to utilize a reduction in corporate tax towards providing better trade schemes in order to strengthen volumes. ITC's better cash flow will aid in incentivizing dealers for the same and stay ahead of the competitors. By passing on the benefits to the customers in terms of pricing, they also intend to increase volumes from the high margin King size segment, in which they have to face stiff competition from Godfrey Phillips.
Additionally, ITC also expects to gain back lost market share from VST Industries in the deluxe filter segment. Volumes have already shown a turnaround from Q2FY20 onwards, and the market expects topline growth
of 10 percent and bottom line growth of 16.3 percent CAGR over FY19-21E (upward revision from 9.7 percent topline and 14 percent in bottom line growth as per bloomberg consensus prior to Q2FY20 numbers).
M&M
While M&M still remains a strong play amid a slowdown in the Auto industry with a perfect product mix strategy, revival in volume turnout is unpredictable. Valuations however offer a comfort. The stock
remains one of the most inexpensive stocks amongst large cap auto companies in India. We maintain buy rating on the stock.
Upon revival in the auto industry which is quite visible in the month-on-month numbers, M&M is well placed to gain the market share from other players in CV and PV segments.
SBI
We believe SBI is rightly positioned to be a major beneficiary of credit growth revival. With a CAR of 12.89 percent, the bank is well capitalized. Also, bank’s ongoing tier I and tier II bonds issue proceeds from Essar Steel and impending share sale plans of SBI Cards and SBI General Insurance should give it the growth capital it needs without dependence on the government’s capital infusion and equity dilution.
We believe SBI’s NIM to improve further despite a cut in the RBI rate as interest rate on savings accounts and cash credit above 1 lakh are directly linked to repo rates.
UPL
UPL currently trades at 11.2/9.9x to FY20/21E PE ratio respectively. After acquisition of Arysta UPL has entered growth phase providing clear visibility of growth. These factors and the margin expansion
opportunity from the Arysta deal synergies should support earnings growth over the medium term.
Cyient
Cyient is currently trading at cheaper valuations than its peers’ due to sub-par growth and lower margin levels. However, we believe a turnaround is possible in the coming quarters. We expect margin expansion to sustain in the future quarters as well. While restructuring costs are expected to be incurred every quarter till Q4FY20, we believe margin expansion will continue due to containment of SG&A costs and strong improvement in gross margins.
KPR Mill
Growth in garment division continues to be the backbone of KPR’s growth with the segment contributing 46 percent of the revenue mix in first half of FY20 versus 38 percent in the same period last fiscal. Interestingly, for the first time in many years, contribution of domestic sales is higher than exports, pointing towards good traction for the domestic innerwear segment ‘FASO’, launched at the end of Q1FY20.
In first half of FY20, 62 percent sales were contributed by the domestic market, the highest in the last 5 fiscals. Garment sales are up 25 percent over the same period at Rs 768 crore. Higher share of garment sales (46 percent of revenue) and higher internal consumption of fabric aided in improvement of gross margins by 320 bps in H1FY20 (40 bps improvement in Q2FY20) on YoY basis, despite winding down the sugar inventory.
Owing to good performance post FASO’s launch in the domestic garment space, we raise our revenue estimates by 4.8 percent and 4.2 percent and our EBITDA margins improve by 110 bps and 190 bps for FY20E and FY21E.
Sunteck Realty
Sunteck Realty (SRL) is engaged in the business of developing, designing and managing high-end and premium residential and commercial properties predominantly in the Mumbai Metropolitan Region (the MMR). In the last decade, the company has developed a project portfolio of around 30 mnsft spread over 25 projects, with around 12 msf to be completed by FY23. SRL has a strong cash flow visibility on back of strong project portfolio in MMR.
We believe the company will be a key beneficiary of the current environment wherein organized players are expected to gain market share. Improved sales and launch of subsequent phases at ODC and Naigaon
will be a key trigger for the company over the next 12 months.
Triveni Turbine
Triveni offers products and services for stream turbines under 30MW in which it has a market share of 60 percent in domestic and 22 percent in international market. Order booking in domestic segment grew by 107 percent to Rs 160 crore and export inflows accounted for 23 percent of inflows. Order backlog stood at Rs 690 crore by the end of Q2 and exports accounted for 42 percent.
Ask an Expert Trade Nivesh
Most brokerages feel 2020 could be the year for broader markets to do well
The benchmark indices outperformed mid and smallcaps in the past two consecutive years, but that could change in 2020 as the government is widely expected to roll out sops and measures to boost core economy sectors.
Most brokerages feel 2020 could be the year for broader markets to do well with midcap and smallcap indices giving returns in the range of 15-20 percent against 10-12 percent for the Nifty50.
"We believe that the midcaps are likely to lead the rally going forward and largecaps may be rangebound. Overall, the first half should be good for equities though in the second half global markets may worry about a global recession and the equity markets may be rangebound in that part," Karvy Stock Broking said.
Overall, the brokerage expects Nifty to end the markets 10 percent higher at around 13,500 levels and midcaps should be higher by 20 percent to close at 20,500 in 2020.
According to brokerages, FY21 is expected to be better year for earnings as well as economic recovery as the economy is likely to bottom out in second half of FY20.
"We have held the view that Q2 or Q3 is likely to form the bottom of the economy and Q4 is likely to witness a pickup. We believe the recent pick up in markets is on account of the anticipation of a recovery," Karvy said.
Moneycontrol collated 15 stocks that could return more than 20 percent in 2020:
DLF
DLF is India’s largest real estate developer. For the quarter ended 30-09-2019, the company has reported a Consolidated sales of Rs 1,715.51 Crore, up 28.87 percent from last quarter sales of Rs 1,331.19 crore and down 19.80 percent from last year same quarter sales of Rs 2,139.03 crore. Company has reported net profit after tax of Rs 181.51 crore in latest quarter. We believe that the Rs 12,000-crore inventory should liquidate in a three-four year period, depending on the pace of sale. We maintain buy rating after posting an encouraging quarter.
ICICI Prudential
ICICI Prudential is promoted by ICICI Bank and Prudential Corporation Holdings Limited. It commenced operations in 2001 and has consistently been one of the leading private sector life insurance companies in India. It was the first private sector life insurer to cross the Rs 1 trillion mark in assets under management (AUM). Its current total sum assured has crossed Rs 11 trillion. Its presence across channels ensures that it is able to cater to the varied needs of customers across all touch points.
Sun Pharma
Sun Pharma is the 4th largest global specialty generic company. It is ranked 8th in USA / largest Indian Pharma Company in USA. It has 44 manufacturing sites across the world. It has portfolio of more than 2,000 products across the world. The company is enhancing their share of specialty business globally. At the CMP of Rs 454, the stock is trading at P/E multiple of 25x.
JSW Steel
JSW Steel is a flagship company of the JSW Group. It is a leading integrated steel manufacturer. Currently one of the fastest growing companies in India, it has a presence in over 100 countries. JSW is also the first company to manufacture high-strength and advanced high-end steel products for its automotive segments.
As a leader in India’s steel industry, we recommend to buy at current price and accumulate on decline. At the CMP of Rs 273, the stock is trading at P/E multiple of 9.8x only.
ACC
ACC is India's foremost manufacturer of cement and ready mixed concrete with a countrywide network of factories and marketing offices. Established in 1936, it has been a pioneer and trend-setter in cement and concrete technology. Its brand name is synonymous with cement and enjoys a high level of equity in the Indian market.
On expectations that the government's recent push towards infrastructure creation will lead to price hike of cement on the back of increased demand. At the CMP of Rs 1,512, the stock is trading at attractive rate.
GAIL India
GAIL's dominant position in India’s gas pipeline network and its high share of volume in the upcoming eastern corridor pipeline is expected to drive future earnings growth. With the development of the natural gas eco system set to improve domestic volumes, GAIL is expected to benefit from stable global gas prices. Additionally, the new US liquefaction terminals will boost RLNG exports.
HDFC Bank
HDFC Bank's retail loans are largely fixed in nature. Having said that they will be building in interest rate risk spread into the pricing of loans linked to the repo rate. Since spreads have to be locked in for 3 years, they are also checking with RBI whether they can make interest rate risk spreads dynamic in nature which will keep the NIMs at the range of 4-4.4 percent.
We believe HDFC Bank will maintain margins in the range of 4.1-4.3 percent. We remain confident that HDFC Bankwill deliver an-above consensus earnings growth CAGR of 22 percent over FY19-24E and RoA of 2 percent by FY24E (notwithstanding the recent tax cuts), leading market cap to almost double to $200 billion from $100 billion currently.
ITC
The market believes ITC will look to utilize a reduction in corporate tax towards providing better trade schemes in order to strengthen volumes. ITC's better cash flow will aid in incentivizing dealers for the same and stay ahead of the competitors. By passing on the benefits to the customers in terms of pricing, they also intend to increase volumes from the high margin King size segment, in which they have to face stiff competition from Godfrey Phillips.
Additionally, ITC also expects to gain back lost market share from VST Industries in the deluxe filter segment. Volumes have already shown a turnaround from Q2FY20 onwards, and the market expects topline growth
of 10 percent and bottom line growth of 16.3 percent CAGR over FY19-21E (upward revision from 9.7 percent topline and 14 percent in bottom line growth as per bloomberg consensus prior to Q2FY20 numbers).
M&M
While M&M still remains a strong play amid a slowdown in the Auto industry with a perfect product mix strategy, revival in volume turnout is unpredictable. Valuations however offer a comfort. The stock
remains one of the most inexpensive stocks amongst large cap auto companies in India. We maintain buy rating on the stock.
Upon revival in the auto industry which is quite visible in the month-on-month numbers, M&M is well placed to gain the market share from other players in CV and PV segments.
SBI
We believe SBI is rightly positioned to be a major beneficiary of credit growth revival. With a CAR of 12.89 percent, the bank is well capitalized. Also, bank’s ongoing tier I and tier II bonds issue proceeds from Essar Steel and impending share sale plans of SBI Cards and SBI General Insurance should give it the growth capital it needs without dependence on the government’s capital infusion and equity dilution.
We believe SBI’s NIM to improve further despite a cut in the RBI rate as interest rate on savings accounts and cash credit above 1 lakh are directly linked to repo rates.
UPL
UPL currently trades at 11.2/9.9x to FY20/21E PE ratio respectively. After acquisition of Arysta UPL has entered growth phase providing clear visibility of growth. These factors and the margin expansion
opportunity from the Arysta deal synergies should support earnings growth over the medium term.
Cyient
Cyient is currently trading at cheaper valuations than its peers’ due to sub-par growth and lower margin levels. However, we believe a turnaround is possible in the coming quarters. We expect margin expansion to sustain in the future quarters as well. While restructuring costs are expected to be incurred every quarter till Q4FY20, we believe margin expansion will continue due to containment of SG&A costs and strong improvement in gross margins.
KPR Mill
Growth in garment division continues to be the backbone of KPR’s growth with the segment contributing 46 percent of the revenue mix in first half of FY20 versus 38 percent in the same period last fiscal. Interestingly, for the first time in many years, contribution of domestic sales is higher than exports, pointing towards good traction for the domestic innerwear segment ‘FASO’, launched at the end of Q1FY20.
In first half of FY20, 62 percent sales were contributed by the domestic market, the highest in the last 5 fiscals. Garment sales are up 25 percent over the same period at Rs 768 crore. Higher share of garment sales (46 percent of revenue) and higher internal consumption of fabric aided in improvement of gross margins by 320 bps in H1FY20 (40 bps improvement in Q2FY20) on YoY basis, despite winding down the sugar inventory.
Owing to good performance post FASO’s launch in the domestic garment space, we raise our revenue estimates by 4.8 percent and 4.2 percent and our EBITDA margins improve by 110 bps and 190 bps for FY20E and FY21E.
Sunteck Realty
Sunteck Realty (SRL) is engaged in the business of developing, designing and managing high-end and premium residential and commercial properties predominantly in the Mumbai Metropolitan Region (the MMR). In the last decade, the company has developed a project portfolio of around 30 mnsft spread over 25 projects, with around 12 msf to be completed by FY23. SRL has a strong cash flow visibility on back of strong project portfolio in MMR.
We believe the company will be a key beneficiary of the current environment wherein organized players are expected to gain market share. Improved sales and launch of subsequent phases at ODC and Naigaon
will be a key trigger for the company over the next 12 months.
Triveni Turbine
Triveni offers products and services for stream turbines under 30MW in which it has a market share of 60 percent in domestic and 22 percent in international market. Order booking in domestic segment grew by 107 percent to Rs 160 crore and export inflows accounted for 23 percent of inflows. Order backlog stood at Rs 690 crore by the end of Q2 and exports accounted for 42 percent.
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