Anand Shah of BNP Paribas Asset Management India advised it is the time to tighten the seat belt to withstand the volatility in the first half of the year to enjoy the earnings recovery ride in the second half of 2019 and beyond.
The year 2018 was a volatile one from a market standpoint. The benchmark indices touched historic highs in the last week of January and August, but could not sustain the rally and consolidated thereafter.
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The BSE Sensex has, so far, climbed 4.7 percent and the Nifty50 has gained 1.9 percent in 2018. However, the broader markets underperformed frontliners during the year as the BSE Midcap index has crashed 15 percent and smallcap index has plunged 25 percent.
Similar volatility is expected in 2019 as well, experts said, the events which played a key role in 2018 (crude and rupee volatility, US-China trade tensions, elections, and Union Budget) are expected to dominate Dalal Street again in the coming year with the addition of one more event — global growth concerns.
Global financial markets — equity, commodities, etc. — should be entering low volatility-low return phase. We had low volatility–high positive return in 2017. 2018 was high volatility–high negative return market.
He said forthcoming general election will impact market volatility but not the return. "In 2018, major moves were more to do with global issues like oil price volatility, or stock valuations and not to do with any policy issues, and this should continue in 2019."
Anand Shah, Head - Investments and Deputy CEO at BNP Paribas Asset Management India said he believes 2019 will be a tale of two halves.
"While the first half of CY 2019 will have multiple events which will keep markets more focused on macro variables, we believe the second half will see micros take centre stage, making stock selection key for outperformance both in equity and fixed income portfolios," he explained.
Mayuresh Joshi, Fund Manager at Angel Broking said the year 2019 will largely be a year of stock-specific stories. "It is unlikely to be a thematic rally either in midcaps or in large-caps."
Here is the list of 15 stock ideas for 2019 that could return 10-44%
Titan Company | Target - Rs 1,105
Wedding season demand is scaling up well for Titan. If consumers continue flocking to its stores during the wedding season, jewelry sales growth of 25 percent for the full year is achievable.
Same-store-sales growth (SSSG) is likely to contribute 75-80 percent of jewelry sales growth, which is even higher than the impressive 60 percent that it was reported earlier. This, in turn, would have extremely positive implications on jewelry EBIT margin.
Revenue growth opportunity of 20 percent is immense and far superior to peers. Also, the margin trajectory appears to be on an uptrend, as revenue is being driven by SSSG. We expect 25 percent EPS CAGR over FY18-20.
Indian Hotels | Target – Rs 163
The Indian hospitality industry is set to enter into an upcycle, led by favorable demand-supply dynamics. Industry occupancy (67 percent) has already breached the optimum level, allowing players to exercise pricing power.
Indian Hotels | Target – Rs 163
The Indian hospitality industry is set to enter into an upcycle, led by favorable demand-supply dynamics. Industry occupancy (67 percent) has already breached the optimum level, allowing players to exercise pricing power.
Given its presence in high-demand, high-occupancy micro markets, Indian Hotel is strategically well placed to capitalize on the growth opportunities.
Indian Hotel also has an edge in terms of operating leverage, given its high fixed-cost proportion and efforts to rationalize expenses. We expect it to record revenue/ EBITDA CAGR of 9 / 25 percent over FY18-20.
Marico | Target – Rs 465
There has been an evident step-up in the pace of new launches over the past 18 months with a couple of notable successes. The recent pipeline and successes so far could enable a new era of growth for Marico if all goes according to plan.
The strong performance of Parachute volumes continues in recent quarters along with healthy growth prospects in the VAHO (Value added hair oil) segment
Marico is also among the pioneers on extensive use of technology in distribution and with augmentation of analytics is creating another sustainable moat for the future. We expect revenue/PAT CAGR of 15 /17 percent over FY18-20.
Oberoi Realty | Target – Rs 574
Oberoi has one of the strongest balance sheets among real estate companies, with negligible net debt.
With strong monetization visibility from its ongoing and upcoming projects, Oberoi is expected to generate healthy free cash flow over FY18-20.
We believe such financial strength offers the company with an opportunity for value-accretive land acquisitions to drive growth potential beyond the existing land bank.
Oberoi plans to multiply its annuity portfolio from 1.6msf to 4.2msf resulting in leasing income increasing by 4x over the next five years. We estimate revenue/EBITDA/PAT CAGR of 47 /45 / 71 percent over FY18-20.
ICICI Bank | Target – Rs 400
ICICI is in the midst of an improvement in the operating environment (stressed asset resolution and growth pick-up) and is showing healthy signs of earnings normalization.
We expect earnings momentum to accelerate from FY20 as the asset quality cycle peaks out, domestic business growth remains strong and the rising mix of retail adds more granularity to loan book.
Further, we expect ICICI Bank to gain from the current crisis in NBFC space, due to its strong franchise in deposits along with superior customer reach across business segments
Aurobindo Pharma | Target – Rs 920
The company has guided for 2x industry growth rate in the EU market along with better profitability on account of the transfer of 97 products from EU to India.
We remain positive on Aurobindo on robust ANDA filings rate, strong pace of approvals, minimal regulatory hurdles and the company outperforming the industry in the EU market.
We expect Aurobindo to record 24 /22 /18 percent CAGR for revenue/EBITDA/Adjusted PAT over FY18-20E, with RoE/RoCE of 22 /16 percent in FY20E.
Hindustan Unilever | Target – Rs 2,140
HUL offers the best earnings growth visibility in the large-cap Indian consumer space.
Four key trends are helping HUL in elevating its earnings growth trajectory to around 20 percent: (1) rapidly improving adaptability to market requirements, (2) recognition and strong execution on Naturals, (3) strong trend toward premiumization and (4) extensive plans to employ technology and create further entry barriers.
The acquisition of GSK Consumer healthcare business pushes HUL among the market leaders in the only key category where it did not have market leadership (Food and Refreshments).
Crompton Greaves Consumer Electricals | Target – Rs 260
Crompton is a leading player in Indian fans Industry with a market share of around 25 percent. The company is looking to aggressively target the 'Premium' category of fans while retaining its market share in the 'Standard' category.
The light electricals industry is poised for robust double-digit growth over the coming few years largely driven by growth in LED. Crompton has undertaken multiple cost rationalization initiatives to combat the margin pressure in the lighting segment.
We like Crompton for its strong product portfolio, established a brand, market leadership, wide distribution network, and robust RoE/RoCE profile.
Infosys | Target – Rs 800
Infosys has built capabilities to match spending shifts in the past three years and Digital revenue now accounts for around 30 percent of the company’s revenue.
Infosys has also been one of the most disciplined companies in terms of operational efficiency in the last couple of years which has helped maintain margins while investing aggressively in building capabilities.
The acceleration in growth momentum, aided by a pick-up in verticals like Financial Services and Retail, and the visibility for its continual from recent deal wins provides confidence of improvement in the coming quarters.
We expect Infosys to register a revenue/PAT of 8 / 13 percent CAGR over the next three years largely driven by Digital segment.
Larsen and Toubro | Target – Rs 1,570
Key positive triggers for L&T are 1) Pick-up in private capex cycle supported by government capex, 2) Timely execution of strong order backlog, 3) Divestment of the non-core assets and net working capital cycle improvement
Divestment of the non-core assets (like L&T cutting tools, EWAC alloys etc.) and networking capital cycle improvement is in line with Project Lakshya. In Q1FY19, L&T signed an agreement with Schneider Electric for sale of its Electrical & Automation segment for a cash consideration of Rs 11,200 crore (post-tax).
We expect L&T to register a revenue/EBITDA/Adjusted PAT CAGR of 13 /19 /20 percent with margin improvement of 130bps over FY18-20E.
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IndusInd Bank | Target - Rs 1,876
IndusInd Bank has an ideal mix of loan book with a niche presence in vehicle finance and corporate banking inclined towards working capital finance. Strong NIM, higher other income, and stable asset quality have resulted in consistent operating performance.
We expect the bank with its high share of CASA (44 percent) to be amongst the key beneficiaries of the higher spreads and softening yields in the near term.
Key monitorables are the Bharat Financial merger, IL&FS exposure and changes in top management.
Voltas | Target - Rs 672
We believe Voltas is the best bet in the consumer durables space from 3-5 years given its strong franchise, focus on plugging the gaps in the product suite (Arcelik JV), improving order book visibility and the cautious approach deriving benefits in the form of improving margins.
Sterlite Technologies | Target - Rs 410
Sterlite Technologies enjoys around 10 percent of the global market share (around 40 percent of the domestic market share). It has an order book of upwards of Rs 6,000 crore giving visibility of around 1.5 years.
Key triggers for company's growth include - 4G Network expansion and 5G deployment around the world, and transformation of the company from a supplier of OF and OFC to providing data network solutions.
Aarti Industries | Target - Rs 1,740
AIL recently received two multi-year deals - Rs 4,000 crore contract with a global agrochemical company for a term of 10 years and Rs 10,000 crore contract for a term of 20 years. This order book provides AIL with long-term and sustained revenue visibility. This will help the company to generate higher margins and improve its return on capital employed.
With the company consistently investing in R&D and due to the increased API demand on account of the recent revival in the domestic pharma industry, we expect AIL to further increase its share in the pharma segment.
With the demand for the specialty chemicals set to increase, the company is poised to grow both in terms of revenues and profits.
Amber Enterprises | Target - Rs 1,106
AEL is the market leader in the room air conditioner (RAC) OEM / ODM industry in India with a market share of around 55 percent (in terms of volumes) and its clients account for around 75 percent share in the Indian RAC market.
Current penetration of RAC in India is around 4.5 percent while the global average is around 30 percent implying ample room for growth.
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