Experts suggest that a large part of the fall was led by external factors and long-term investors should use the opportunity to get into quality stocks at lower valuations
The escalated trade tensions between the US and China spooked the investors on the Street on May 6 pushing benchmark indices below their crucial support levels.
The S&P BSE Sensex saw a cut of over 300 points while the Nifty50 closed below 11,600 levels.
Experts suggest that a large part of the fall was led by external factors and long-term investors should use the opportunity to get into quality stocks at lower valuations.
Adding to the uncertainty is a domestic political event - Lok Sabha elections. The outcome of the voting will be announced on May 23.
“Short-term market movements will be more sentiment and liquidity driven and can seesaw depending upon the election outcome. Volatility is normally expected during such periods but to take advantage of volatility has to be the order of the day,” Devang Mehta, Head- Equity Advisory, Centrum Wealth Management told Moneycontrol.
“Once event (May 23) is out of the way, drivers for markets will swing from politics to fundamentals, more so on the earnings growth trajectory. The ongoing momentum with which indices are approaching the counting day means a positive result is more or less discounted and markets may revert back to other factors like growth, valuations, etc,” he said.
Contra traders should look for short selling opportunity around 11,750/11,760 with a final stop loss at 11,810, said Shrikant Chouhan, Senior VP, Technical Research at Kotak Securities.
“The focus is on the top 10 companies, which are fundamentally sound and have an adequate free float in the market. Across the globe, the scenario is the same and very few companies that are fundamentally sound help the market to move either higher or lower,” he said.
Here is a list of 10 stocks that brokerages upgraded after the March quarter results:
Godrej Consumer Products: Upgrade to buy| Target: Rs 800
CLSA upgraded Godrej Consumer to buy from underperform post-March quarter results but maintained its target price to Rs 800.
The domestic business remains weak but international is gradually stabilizing. It looks like the worst seems to be behind and CLSA is confident of management’s strategy to revive growth rates.
The stock may stay range-bound in the near-term until there is a pick-up in growth and earnings.
Strides Pharma: Upgrade to outperform from Neutral| Target Rs 532
Macquarie upgraded Strides Pharma to outperform from neutral earlier post-March quarter results and also raised its target to Rs 532 from Rs 486 earlier.
The global investment bank expects the US market to be a key margin driver for the pharma major. It expects a sharp recovery in EBITDA to PAT translation from FY20 at 14x FY20 PER.
Concerns are fairly captured, and Macquarie expects the US margin to expand from 11 percent in Q3FY19 to 18 percent in FY20.
Macquarie sees strong visibility in other regulated markets, and raise FY20/21 EPS estimates by 3 percent.
HCL Technologies: Upgraded to buy from Neutral| Target: Rs 1250
BofAML upgraded HCL Technologies to buy from neutral earlier and also raised its 12-month target price to Rs 1250 from Rs 1060 earlier.
The global investment bank expects the organic revenue growth rate to improve in 2019-20. The IT firm is poised to gain from the large deal intake.
BofAML sees stable margin on accretion from software products in the next financial year. The 2019-20 revenue guidance implies an uptick in organic growth rate.
Orient Cement: Upgrade to buy from Neutral| Target: Rs 140
HDFC Securities upgraded Orient Cement to buy. The company is already a cost leader among mid-size Indian cement companies and is planning to add waste heat recovery systems (WHRS) across its Telangana and Karnataka plants by FY21E to further drive up efficiencies.
Thereafter, Orient hopes to commence brown-field expansions (potentially 6 MT by FY25E, across locations). This will be calibrated in line with OCF, which translates to leverage hovering around ~1x.
Exide Industries: View changed from negative to positive
Sharekhan changed its view on the stock from negative to positive and sees a double-digit return in the next 12 months.
Exide Industries posted in-line results for Q4FY2019. While the automotive OEM production declined, healthy growth in automotive replacement, UPS, solar and other infrastructure segments drove the top-line.
Better product mix and lower employee expenses led to margin expansion on a Y-o-Y basis leading to double-digit net profit growth. Going ahead, we expect robust demand in the automotive replacement segment and healthy UPS, infrastructure and telecom sales to drive top-line growth.
Further, the recent correction in lead prices is expected to drive margin improvement and earnings growth. The stock has corrected by about 15-17 percent in the last three months and offers a good entry point to investors.
UltraTech Cement: Upgraded to Accumulate| Target: Rs 4700
Prabhudas Lilladher upgraded the stock to Accumulate with a target price of Rs 4,700. UltraTech Cement reported Q4FY19 earnings were above estimates driven by 9.6/4.8 percent lower than expected Energy/Freight costs (on per tonne basis).
The price hike across regions and improved share of high margin trade segment rest our concerns of poor pricing power. The domestic brokerage firm upgrades their EBITDA estimates for FY20e/FY21e by 15/21 percent to factor in higher realizations coupled with higher capacity utilization, improved margins and deleveraging of Non-core assets in acquired assets.
M&M Financial Services: Upgraded to buy| Target: Rs 433
Narnolia Financial Advisors upgraded M&M Financial to buy post-March quarter results with a target price of Rs 433.
Despite the slowdown in the auto sales in the industry, AUM growth of M&M Financial remained strong on account of rural-based geographical expansion and increasing relationship with various OEMs.
“We expect strong infra/construction activity and improving the rural economy will aid growth going ahead. Due to strong parentage and track record, raising fund will not be a problem for the M&M Financial going ahead,” said the note.
Management expects an increase in branches to drive loan growth & collection efficiency going ahead, with increasing proximity to the customers. Assets quality improved significantly led by strong rural cash flow.
“Management expects assets quality to gradually improve over the period and hence we reduce our credit cost estimate which increases our FY20 earnings estimate by 16 percent,” added the note.
Ajanta Pharma: Upgraded to Long from Add| Target: Rs 1134
Equirus Securities upgraded Ajanta Pharma to long from add.
The beat in March quarter results was mainly led by better-than-expected revenues in Asia branded and Africa institution businesses, which boosted EBITDA and earnings owing to high operating leverage.
The last two years have been sluggish for Ajanta Pharma with a 1 percent revenue CAGR and a decline in earnings.
However, at the current reflective base of FY19, all headwinds seem discounted, with growth likely ahead; revenues would be led by growth across geographies while margin gains by rising utilization of Dahej and Guwahati facilities.
Britannia Industries: Upgrade to Add| Target Rs 3,055
CIMB upgraded Britannia to Add with a target Rs 3055. “We like Britannia from a long-term perspective as it offers multiple channels of earnings growth,” said the note.
“Given the correction in the stock price, we upgrade to Add. We lower our target price to Rs 3,055/share as we assign a P/E multiple of 45x (10 percent premium to its 5-year average P/E, from 50x earlier),” it said.
Can Fin Homes: Upgrade to Accumulate| Target: Rs 385
Quantum Securities Pvt upgraded Can Fin Homes (CHFL) to Accumulate post-March quarter results with a target price of Rs 385. The network for FY18 has been re-stated upwards by 10 percent post-IND-AS transition.
CFHL trades at 1.9x FY21E ABV of Rs 171.3 (Vs 161 earlier). With signs of growth normalizing we increase our target P/ABV multiple to 2.25x (Vs 2.0x earlier) on FY21E ABV and arrive at an upward revised target price of Rs 385.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions
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