Sensex drops over 1,000 points; Guess what! Grab this opportunity, invest in these 8 money making stocks
Decline in Indian markets has made it very difficult for investors to actually choose an investment method for themselves in equities.
Today, the Sensex dropped by over 1000 points, while Nifty 50 fell by over 300 points in early trade. However, at around 13:26 hours, both the indexes did manage to reverse some of their losses - Sensex was trading at 34,237.71 down by 523.18 points or 1.51%, whereas the Nifty 50 was below 153.15 points or 1.46% trading at 10,306.95. The Indian markets have been taking heat since last four weeks, on the back of IL&FS default, mutual funds decline, NBFC liquidity crisis, RBI status quo, depreciating rupee and soaring crude oil prices. This has made it very difficult for investors to actually chose an investment method for themselves in equities.
If you are planning to take opportunity of declining Indian markets, here’s a list of 8 companies that are best pick for longer term, as per Edelweiss.
Bajaj Finance Limited (BFL) is one of the largest NBFCs with consolidated Assets Under Management of INR 933bn one of the finest asset quality. BFL among NBFCs is well diversified with significant presence with Consumer, Rural, SME, Commercial & Mortgage (BFL recently started a housing finance subsidiary). The AUM mix of the company for Consumer, SME; Commercial; Rural and Mortgage (Including housing Finance) segments are 39%, 13%, 13%, 7% and 28% respectively
Indian mortgage penetration is 9.5% of GDP as compared to 22% in China and developed natation accounts >40%. The opportunity size in consumer business is about INR 4-5% of GDP which is likely to increase and renewed focus on SME sector is likely to augment the loan demand for the company.
Company has consistently improved the asset quality on back of prudent credit appraisal mechanism and also proper collection team. Hence, net NPA came down from 7.05% to 0.4% over FY08-18. We expect, asset quality to remain robust going forward.
Hence, the company’s target price is set at Rs 2,700 ahead.
HDFC Bank is the largest private bank with an assets and loans & advances INR 10.6tn and INR 6.5tn respectively. The distribution network comprises of 4,787 branches and 12,635 ATMs in ~2,691 cities / towns.
The Indian banking sector has grown >1.5x of Indian nominal GDP growth over FY05-18. The total outstanding loans & Advances (NBFC + banks) is about 67-70% of India’s GDP as compared to more than 100% in other developing and developed nations. Hence, the opportunity size in lending business is mammoth for a decade for HDFC Bank.
HDFC Bank may look to unlock value by selling stake in its subsidiaries HDB Financial Services and HDFC Securities. HDB for FY18 reported PAT of INR 9.5bn and Loan book of INR 436bn, HDFC Securities reported revenue for FY18 of INR 7.9 bn and PAT of INR 3.4 bn.
Edelweiss believes the bank may divest stake in its subsidiaries in future to unlock value for the bank and strengthen its balance-sheet. At CMP, stock is trading at 3.2x FY20 ABV with a RoA and RoE of 2.1% and ~18. The bank has a target price of Rs 2,452.
IndusInd Bank (IIB) is one of the fastest growing private banks with strong presence in consumer financing. Bank’s loan mix between wholesale and retail stands at 60% and 40% and in retail major exposure is in CV financing. Bank has an assets over INR 2.2tn with branch strength of 1,410 and 2,285ATMs
IIB is well placed to leverage its position in retail sector on back of its expertise in CV financing, merger with Bharat Financial Inclusions is likely to boost NIMs and RoA of the bank. The bank plans to capitalize on the cross-sell opportunities by mining Bharat Financial’s large customer base. The focus areas would be savings accounts, recurring deposits, and partnerships for two-wheeler and home loans.
Edelweiss says, “We, bank would continue to register superior growth combined with stable margins and credit cost. The bank is likely to continue earnings growth of more than 25% CAGR given improving retail liabilities and positive synergies on merger with Bharat Financial.”
The target price for this bank is set at Rs 2,022.
Larsen & Toubro
Larsen & Toubro (L&T), headquartered in Mumbai, is a technology driven engineering and construction organization, and one of the largest companies in India's private construction and engineering sector.
Cumulatively, Central Government is expected to spend INR 27 lakh cr over the next 5 years on transportation, urban infra and power T&D. L&T, anchored by its diverse capabilities and unique positioning, is expected to grab more than INR 3.5 Lakh cr orders from these sectors (current order-book INR 2.5 lakh cr).
LT’s stock price has always been a leading indicator of the company’s order-inflow trend. Over the past one year, LT’s stock price has corrected 40% and in FY16 overall order inflow is estimated to decline 10%. The target price for L&T is now set at Rs 1,603.
Maruti Suzuki India
Maruti Suzuki India Ltd (MSIL) is the largest passenger vehicle (PV) manufacturer in India having market share of ~53% currently. Company has dominant position across all the major segments in PV industry.
Strong product offerings across all segments in PV industry along with significant success of almost all recent launches in past 2 years has helped MSIL to further scale up its market share.
Rising share of premium cars like Baleno & new Swift, Ertiga, Brezza, S-Cross and Ciaz helping company to gain in terms of realization per unit.
Partnership between Suzuki Motor and Toyota comes with significant importance to Maruti going forward, as it will help the company to get access to Toyotas futuristic powertrain technologies such as electric vehicles.
At CMP stock is trading at 18x of FY20E EPS. The company’s target price is set at Rs 10,054 from currently where it is near Rs 6,000-mark.
Sun Pharma Ltd
SUN pharma is largest pharmaceutical company in India with 30% of sales coming from domestic markets and remaining 70% from Exports.
Post Halol resolution, Edelweiss expects base business will move from $80 mn per quarter to $120 mn per quarter from 2QFY19 onwar.
Innovative pipeline which include ODOMZO, SISCERA, TILTRA and ILLYA will drive incremental growth and expect $400 mn peak sales within next 5 years, which will compensate price erosion in base generics business.
Company will have INR 20,000 cr net cash at the end of FY19E, which can be utilised for earning accretive acquisition. The target price for the company is set at Rs 792.
Tata Consultancy Services
TCS is one of India's largest and oldest IT companies. With a presence in 42 countries, TCS boasts a large and diversified client base. TCS’s headcount (including subsidiaries) stands at 400,875 and its revenues for the last twelve months (TTM) stood at INR1,27,800 cr (USD19.6bn).
BFSI, which contributes 30% of TCS’s revenue started growing at higher pace and management is confident of double digit growth in BFSI segment in near to medium term.
The company has strong hiring plans for FY19 which combined with lowest attrition among peers directing towards better future a head.
At CMP of INR 1,968, TCS is trading at 23x of FY19 and 21x of FY20E EPS of INR 80 and INR 88 respectively. The company has a target price of Rs 2,900.
UltraTech’s capacity share increased from 13.6% in FY13 to 19.4% in FY18, making it a market leader in South, West and Central India and the second largest player in the North and East. It has also aggressively ramped up its portfolio in the non-grey cement business (White Cement / RMC) and is well-poised for growth in these businesses.
Edelweiss said, “We build in ~400-500bps higher volume growth than our industry growth expectations – 13% in FY19E and 9.2% in FY20E. With improved realization of UltraTech across regions, we expect 14.1% FY18-20E EBITDA CAGR.”
It added, “We do not expect multiples to contract hereon assuming sharp growth in EBITDA. Sustained operational efficiency and capital discipline
from hereon with present scale of operations will keep multiples rich.”
At CMP, stock is trading at 14.3x EV/EBITDA and $174 EV/tn in FY20E. The target price of the company is set at Rs 4,900.
Ace investor Rakesh Jhunjhunwala once said, ‘Anticipate trend and benefit from it. Traders should go against human nature.’ This quote fits right in with this negative trend of Indian markets. Not every stock goes down forever and, considering the market is very volatile, it would only be a matter of time for a turnaround.