This calendar year, Sensex has corrected around 10 per cent at 24,893.81 on September 7. The index is now just 770 points higher from the level of 16 May, 2014, when Modi-government was formed. (PTI)
The BSE Sensex fell below 25,000 mark for the first time in the past 15 months on September 7, 2015. During the period, the index touched its closing high of 29,681.71 on January 29, 2015 and low of 24,805.83 on June 4, 2014. According to a brokerage house Sharekhan, the Indian equity market got caught in the wave of global volatility driven by a meltdown in the Chinese equity market that was followed by a knee-jerk reaction from the Chinese authorities to control the situation and support the economy.
In the past two-trading sessions, the Sensex gained 825 points. However, it pared some of its gains in early trade today (September 10) and was trading down over 400 points.
Amid the rising uncertainty, foreign investors pulled out of risky assets including equities of emerging markets (EMs) like India, which witnessed record outflows of over Rs 17,000 crore in August this year. On the other hand, the domestic institutional investors remained buyers providing vital cushion to the stock market.
This calendar year, Sensex has corrected around 10 per cent at 24,893.81 on September 7. In the BSE 500 index, 234 stocks underperformed the Sensex during the period. Out of 234, 28 stocks declined over 50 per cent during January 1 and September 7. Share price of RISA International declined the most — 95.94 per cent to Rs 12.72 on September 7 from Rs 313.40 on January 1. It was followed by PMC Fincorp (down 95.60 per cent to Rs 1.71), CCL International (down 91.19 per cent to Rs 43.90) and PS IT Infrastructure & Services (down 88.01 per cent at Rs 10).
On the other hand, share price of Rajesh Exports, Tata Elxsi and Chennai Petroleum Corporation jumped 210 per cent, 185 per cent and 174 per cent to Rs 461, Rs 1725 and Rs 200 respectively during January 1 and September 7.
In a research note Sharekhan said, “After the correction, the valuation of the Sensex has declined to around 15x FY2016E earnings, which is close to the long-term mean, though on a relative basis (compared with the other emerging markets), the premium has gone up due to a sharp correction in these EM indices. Given there are limited triggers in the near term and global sentiment is adverse, the domestic stock market may remain volatile and fluctuate in a wider band. We prefer sectors that are likely to benefit from the weakness in commodity prices and a revival in consumer demand, such as pharmaceuticals and information technology, apart from select auto companies, private sector banks and financial service companies, and consumer discretionary stocks.”
After the recent correction various brokerage and research houses are coming up with their research reports on various stocks which are looking attractive post correction.
Below are a few stocks on which experts are bullish on:
NTPC
Recommended By: JM Financial
Target Price: Rs 134
Why Buy: The share price of thermal power giant NTPC has corrected 25 per cent since March 2015. According to JM Financial, the stock is looking attractive due to high earnings visibility on regulated RoEs, strong balance sheet with 21 per cent of CMP in liquid assets, and high growth from FY17/18 which can potentially add 35 per cent to regulated asset base and earnings. Moreover, despite low power demand led low plant utilisations (PLF), NTPC continues to earn regulated RoEs based on its plant availability (PAF), thus limiting downside.
On September 8, NTPC was trading 2.44 per cent higher at Rs 115.40 in the late morning trade.
YES Bank
Recommended By: Bank of America Merrill Lynch (BofA-ML)
Target Price: Rs 1150
Why Buy: On a year-to-date basis the share price of YES Bank declined over 15 per cent to Rs 650.30 on September 7. According to BofA-ML, the share price of the company declined on concerns about asset quality. The global finacial services firm believe the share price of the company can jump further 70 per cent from its present level.
In the noise about the bank’s asset quality, BofA-ML believes that the ‘build-up’ of its branch banking franchise is clearly being ignored. A large part of this is already visible on liability side. The focused approach toward customer acquisition and building a branch-centric model should ultimately lead to the desired/expected full ‘retail’ model. What will aid the “retail-ization” faster is the under-utilized distribution (~40-45% of current branches) and the plan to increase branches by ~2.5x, to 1,500, by March 2018 (vs. 662 now).
Marico
Recommended By: Sharekhan
Target Price: Rs 460
Why Buy: Marico’s stock price has corrected by almost 15 per cent from its high in the current weak market conditions. According to the brokerage house, with less propensity to the effect of lower monsoon, as 33 per cent of its domestic revenue is coming from rural India and benign commodity prices, the recent drop in Marico’s stock price makes it one of the better picks in the mid-cap FMCG space. At the current valuation of 28.5x its FY2017E earnings, Sharekhan believes the downside risk is minimal and hence it upgrades recommendation on the stock to ‘Buy’.
Kotak Mahindra Bank
Recommended By: Nomura
Target Price: Rs 750
Why Buy: Recent 20 per cent correction provides investors with a good entry into the high-quality bank. After the ING Vysya acquisition, investors’ expectations seemed high. However, the brokerage house thinks Q1FY16 integration charges partially explain the lower acquisition cost and also set investors’ expectations on growth and asset quality lower. It feels Kotak’s earnings quality remains one of the best in the sector. Merger cost taken; synergies to follow Kotak upfronted Rs 3 bn of ING-related integration charges (18% of ING Vysya’s net worth) explaining the lower 2.2x valuation on the merger. The quality of Kotak’s CASA and fee growth remains superior with CASA accretion being more granular than peer banks. As well, the brokerage house said exposure analysis suggests that risk to Kotak’s asset quality is very low.
Praj Industries
Recommended by: Edelweiss
Target price: Rs 100
Why buy: Praj Industries’ (Praj) senior management, during a recent interaction with Edelweiss, was reasonably confident about Praj’s medium to long term growth prospects. In the near term, while the ethanol business is likely to have limited impacted by weak crude prices, management maintained strong outlook on its brewery and high purity (PH) businesses. The company has sharpened focus on internationalisation of its PH business and expects strong momentum to emanate from pharma industry. PHS is expected to be a significant contributor to revenues over next 2–3 years. On the Petrobras order (~25% (Rs 9.8 bn) of current order book), management mentioned the order stands firm and there are no chances of cancellation. We believe the company is capable of scaling up its emerging and brewery businesses globally over next 2–3 years, thereby reducing reliance on ethanol business, which could in turn lead to substantial ramp up in RoE profile (FY15 RoE at 18% ex cash) beyond FY17E.
(Disclaimer: The stocks are recommended by the respective brokerage houses and not a recommendation from Financial Express online)
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