The festive season is here and many brokerages have come out with Diwali stock picks that can deliver solid returns over the next one year. The Indian economy is in a sweet spot, they said, adding that India offers stability in terms of growth that is missing globally.
Indian stocks have also performed relatively well so far, despite policy tightening by central banks, the Russia-Ukraine geopolitical crisis and recessionary fears in developed markets.
The coming Hindu year, Samvat 2079, looks much brighter and more promising, said Axis Securities.
“While inflation continues to be a major challenge in the developed world, inflation in the domestic economy seems to be manageable. Good monsoon, higher reservoir levels, cool-off in commodity prices, and healthy job/labour market cumulatively indicate that the domestic economy would accommodate the prevailing inflation rather smoothly,” it added.
Axis Securities has recommended nine stocks that it expects to deliver up to 28 per cent per cent return over the next 12 months. Check out!
IDFC First Bank
Target: Rs 70
Current Market Price: Rs 54.50
Upside: 28%
With a strong and granular deposit base, IDFC First Bank is focused on growing its loan portfolio wherein the retail book is expected to drive the same.
The brokerage firm believes the stock is poised for re-rating, given the continuous improvement in the bankтАЩs asset quality, its strategy to improve operating performance with expected operating leverage and superior return ratios over FY23-25E.
Westlife Development
Target: Rs 870
Current Market Price: Rs 721.90
Upside: 20.5%
Axis Securities expects the companyтАЩs Ebitda margin to be in the range of 14-15 per cent, driven by improving product mix тАУ entering the fast-growing fried chicken category and scaling up of high margin McCafe business, operating leverage and cost rationalisation тАУ cluster store approach to reduce overall cost and bring supply chain efficiencies, and economies of scale from operating three categories in one store without incurring major Capex.
ITC Ltd
Target: Rs 380
Current Market Price: Rs 328.65
Upside: 15.5%
The brokerage said ITC stock trades at 18 times FY25E EPS and that its 4-5 per cent dividend yield provides a huge margin of safety compared to peers. The recovery in the cigarette business and uptick in Agri, Hotels, and Paperboard in the near term makes ITC a better play in the entire FMCG pack where valuations are high.
Sundaram Finance
Target: Rs 2,490
Current Market Price: Rs 2211.95
Upside: 12.5%
The brokerage firm noted that Sundaram Finance has been conservative in building its loan book during uncertain times and this approach has helped the company in controlling asset quality stress.
“Despite the ups and downs in the CV cycle, the managementтАЩs prudence in lending has led to otherwise consistent performance in the past, resulting in strong return ratios. SUFтАЩs well-diversified secured loan mix with strong underwriting practices and comfortable capital position (CAR 24.1 per cent) will support operating performance in the current broad-based recovery in the CV space,” it added.
Ashok Leyland
Target: Rs 175
Current Market Price: Rs 147.15
Upside: 19%
Axis Securities believes that the company remains well-positioned to benefit from the cyclical recovery, especially in buses and higher tonnage trucks with a higher market share. Demand recovery and gradual price increases are expected to drive improvement in the longer run, it said.
Also, the raw material cost pressures are likely to subside leading to margin improvement in the upcoming quarters, it said.
Aptus Value Housing Finance India Ltd
Target: Rs 350
Current Market Price: Rs 300.80
Upside: 16%
Aptus remains well-placed in the high-growth market that exhibits lower competition due to the expertise required to cater to the un/underserved self-employed customers, Axis Securities said.
“While net interest margin compression over the medium term is imminent, stable Opex, and gradually improving credit costs with asset quality stress receding will support strong return on assets (RoAs), thereby justifying premium valuations,” it said.
Indian Hotels Company Ltd
Target: Rs 375
Current Market Price: Rs 317.15
Upside: 18%
The brokerage house believes that the Indian Hotel Industry is pegged to report average room rate (ARR) growth and occupancy improvement by 400 bps over the period 2022-2024.
Axis Securities expects significant improvement in the companyтАЩs realizations and occupancies, which in turn, would be further augmented by the strong operating leverage it enjoys among the industry peers.
NOCIL
Target: Rs 300
Current Market Price: Rs 254
Upside: 18%
Axis Securities believes that NOCIL stands to be the key beneficiary of the China alternative theme in the niche rubber chemical space in India.
“The company is witnessing strong demand tailwinds and reducing pressure from raw materials. Furthermore, the operational leverage will boost its margin profile in the coming quarters,” it added.
Polycab India
Target: Rs 2,860
Current Market Price: Rs 2574.60
Upside: 11%
With superior financial strength, expansion of distribution network into tier-2, and tier-3 cities, and strong brand recall, the company is poised to gain market share from unorganised players in both Wires and Fast-Moving Electrical Goods (FMEG) segments, Axis Securities said.
The brokerage believes the growth will be driven by demand recovery, new product launches, product premiumisation, and increasing contribution of exports over the long run.
