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    Five stock ideas to swim through the May consolidation phase in market

    Synopsis

    After BoJ played party pooper on D-St, experts believe not much steam is left in the market. Earnings season is the biggest trigger for the market now.

    ET Online
    NEW DELHI: After the Bank of Japan played party pooper on Dalal Street last week, experts believe not much steam is left in the market.

    “What surprised people was the Bank of Japan not increasing the stimulus. That was an important event, because everyone was expecting the stimulus to continue. It was important to raise it,” said Nischal Maheshwari, Head of Institutional Equities at Edelweiss Securities.

    Maheshwari says besides the mood swings of global financial markets, valuations are also proving a hindrance to the market’s next upward move.

    “Valuation is what my concern is at the moment. We are already trading at around 16 times FY17 numbers. You do not have much scope until you start seeing some improvement in earnings. An earnings upgrade is what we are waiting for. I do not expect that to happen over the next one or two quarters,” he said.

    The ongoing earnings season is the biggest trigger for the market in the near term. Nitisha Shankar of Yes Securities says that may cause the market move sideways in the near term and the correction seen on Friday was just a blip.

    “The market should start moving sideways as the earnings season is going on. That has been the biggest event trigger. In the absence of any other trigger, the market should continue to move sideways,” she said.

    “There would be a bounceback in the market, but even then the gains on the upside would remain capped in the absence of any other trigger,” she added.

    Here are five stock ideas that investors can look at with a 12-month investment horizon after their March quarter numbers:

    Granules India (Rating: Buy | Target price: Rs 149): “Granules India summed up FY16 performance on a strong note, as reflected in a 300 basis points (bps) expansion in EBIDTA margin to 19.5 per cent and 30 per cent growth in PAT to Rs 1,180 crore, broadly in line with our expectations,” said brokerage firm Systematix Stocks & Shares.

    Systematix believes that the management’s FY17 commentary was positive and sees the company growing on the back of (a) rampup at Omnichem JV, (b) potential revenue from capacity expansions in key business verticals and (c) foray into the US market through own ANDAs and OTC products remains intact.

    “We maintain the estimates for FY17 and FY18 and the target price of Rs 149 (16 times FY18e EPS), though an early USFDA resolution to its Jeedimetla facility will kick in positive sentiments,” it said.

    Va Tech Wabag (Rating: Buy | Target price: Rs 730): “VA Tech Wabag registered orders of Rs 50,000 crore, up 68 per cent (YoY) for FY16, exceeding its order inflow guidance of Rs 35-37,000 crore,” said brokerage house Motilal Oswal Securities.

    MOSL sees the company’s order books driven by the domestic sector with projects like Namami Gange, Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and finalization of large municipal water and desalination projects across Mumbai and Chennai.

    “We value the stock at 20 times its estimated FY18 EPS of Rs 36.5 to arrive at a target price of Rs 730 (five-year average at 19.1 times),” it said.

    Dabur India (Rating: Buy | Target price: Rs 309): Dabur India recently reported a 16.6 per cent jump in net profit for fourth quarter at Rs 330 crore while its volume grew 7 per cent.

    “We remain optimistic on growth prospects in the coming year driven by 1) expectation of a normal monsoon to boost rural demand 2) benefits of pay commission and OROP on urban demand 3) benefits of project Core, Double and LEAD in distribution expansion 4) rising consumer affinity for herbal and natural products and 5) premium variants in product segments like Honey, OTC, Skincare,” said brokerage firm Prabhudas Lilladher.

    Prabhudas Lilladher expects Dabur to revert to mid teens sales growth, although it sees margin expansion in domestic business to be unlikely. "We estimate 14 per cent sales growth and 13.7% PAT CAGR over FY16-18 after factoring in 200 basis points (bps) increase in tax rate. We rollover our target price on FY18 earnings and increase target price to Rs 302," it said

    ACC (Rating: Buy | Target price: Rs 1,600): "ACC reported earnings for Q1CY16 above our expectation on the back of lower than expected costs. We expect sustainable reduction in costs on the back of shift to pet coke, commissioning of fully modernised facility at Jamul and rationalisation of freight cost," said Prabhudas Lilladher.

    The company saw 9.3 per cent growth in volumes while profit after tax stood Rs 230 crore, down 9.8 per cent (YoY).

    “Driven by improved quality of operations, we maintain our buy rating with a target price of Rs 1,600, EV/Ebitda of 13 times CY17 earnings. We see strong potential for re-rating of the stock as lower costs are sustainable in nature, driven by improvements in efficiency and flexibility in fuel mix," it said.

    Ultratech Cement (Rating: Buy | Target price: Rs 3,851): Ultratech Cement's revenue grew 5 per cent in YoY terms in March quarter while profit after tax grew 10.8 per cent to Rs 6,814 crore.

    "With spot price meaningfully higher than Q4 average, we expect industry profitability to benefit in first quarter of FY17. While recent trend reversal in pet coke prices would gradually reduce cost tailwinds, we expect continuation of deflation in energy cost in first half of FY17," brokerage firm MOSL said.

    "While 4QFY15 base was favourable, management guides for 7-8 per cent momentum to continue on the back of tangible sign of pick-up in infra-spending. It is a strong bet on the cycle upturn, and in our view, the success in asset creation should overshadow any near-term concerns for long-term investors," it said.

    (Views and recommendations given in this section are the analysts' own and do not represent those of EconomicTimes.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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