Six Beaten Down Stocks + Top Picks + Model Portfolio Of Best Stocks

Beaten Down Stocks

We are removing kansai Nerolac and Ashok Leyland from Beaten down list post 28% and 13.5% appreciation since inclusion.

 ITC: Valuations attractive at 50% PE discount to coverage universe, ~3% dividend yield with

 IndusInd Bank: Benefits from Bharat Financial Integration, steady growth and corrected valuations

 GAIL (India): Downside limited at current valuations, lack of clarity on Gas pipeline business de-merger has de-rated the stock

 Mphasis: Mid tier IT company which has stable growth and margins, strong cash generation and ROE of 20%.

 Mahangar Gas: Looks attractive at 12.2xFY21 EPS as overhang of British Gas is now behind

 EIL: Strong Order backlog of Rs114 bn (42% Consultancy), key beneficiary of refinery capex, RoE/RoCE of ~19%, 4% dividend yield available at PE of 12.1x FY21E.

Model portfolio

 NIFTY EPS cut by 1% for FY20: NIFTY EPS has been cut by 1% for FY20 while FY21 has seen 2% upgrade. we now estimate NIFTY EPS growth of 16.1% in FY20 and 27.3% in FY21 (led by Banks and Auto). We also introduce FY22 EPS at Rs761.8 and estimate 19.6% EPS CAGR over FY19-22. Our estimates are 4.6%, 3.4% and 3.5% lower then consensus for FY20,21 and 22.

 NIFTY is currently trading at 19.7x 1-year forward EPS (19.4 earlier) which shows 7.6% premium (12.3% in July4) to LPA of 18.3. We assign multiple of 18.3xSept21 EPS and arrive at 12 month NIFTY target of 12993 (12488 earlier at 19xFY21 EPS).

 Our model portfolio has out performed NIFTY by 4.12% in the past 12 months while it has underperformed NIFTY by 0.8% since 2Q Preview. The underperformance has been chiefly due to sharp correction in prices of Interglobe Aviation, Infosys, Titan, UPL and LTTS, however our long term call on these names remains unchanged. We are not adding any new stock in Model portfolio. We are increasing weightage of Reliance Industries, ICICI Bank while cutting on consumer names like HUL, Titan and ITC.