Sensex mantra: 10 stocks you can look at in a highly volatile market

NEW DELHI: With volatility becoming the buzzword on Dalal Street ever since the Brits voted to leave the EU last week, trading in equities has become a tricky game.

But market veterans say given India’s strong economic fundamentals and clear signs of growth revival in the economy, investors can opt to buy quality stocks on dips.

Deutsche Bank on Monday slashed its target for the S&P BSE Sensex by 7 per cent to 27,000 level from 29,000 earlier, citing heightened global uncertainty following Britain’s decision last week to exit the European Union.

The benchmark indices are likely to stay rangebound over the next six to 12 months, but there will be plenty of action on individual counters. To safeguard your portfolio from a Black Swan event such as Brexit, investors should take exposure in domestic plays to hedge their portfolio.

Analysts say the bull market is still intact in India as the situation is relatively better than most other emerging markets (EMs). Looking ahead, a good monsoon, possible clearance to the much-awaited GST law and Pay Commission award should boost prospects for the economy and the market.

“I think India is in a bull market and it still has a long way to go. These are global factors - China, Brexit and negative interest rates which are causing all these short-term pain,” Akash Prakash, CEO & MD, Amansa Capital, said in an interview with ET Now.

“India has a real shot for the bull market to continue and accelerate. I do not think the cycles are compressing. I think there will be volatility but India is poised to do well in a long-term cycle,” he said.

Based on the recommendations from different brokerages, we have collated a list of 10 stocks that investors can look at to shield themselves against near-term volatility, as long as their investment horizon is at least 12 months.

Arvind: Buy | Target price Rs 366

CLSA has maintained a buy rating on Arvind with a 12-month target of Rs 366. A shift towards consumer-driven business is likely to drive rerating. Arvind is the best play on India's fast-growing branded apparel market, said the global investment bank.

The brokerage also likes its strong product lines, and retail management capabilities. A shift from capital-intensive textiles business to asset-light, consumer-centric model is a big positive.

This shift is likely to drive 19 per cent earnings per share (EPS) CAGR over FY16-18CL, raising the return on equity (ROE) from 13 per cent to 15 per cent by the calendar year 2018.

Dr Reddy's Laboratories: Buy | Target price Rs 3,735

CLSA maintains a buy rating on Dr Reddy's Laboratories with a 12-month target price of Rs 3,735 as differentiated US products can shift margin profile.

The global investment bank started transitioning beyond simple generics, with a focus on differentiated derma, and central nervous system (CNS).

The pharma major is monetising products in the USA plus above-average growth in India, will push up ROIC, as per the CLSA report. The global investment bank projects 23 per cent profit CAGR over FY16-18CL.

CLSA expects the stock to rerate as earnings growth recovers and FDA issues are resolved. It sees Dr. Reddy's as a Double Bagger in three years.

Bosch: Outperform| Target price Rs 24,500

Credit Suisse maintains an outperform rating on Bosch but raised its 12-month target price to Rs 24,500 from Rs 23,500 earlier. The VW scandal puts the spotlight on divergence in driving conditions in real life, and lab tests said the brokerage report.

The movement towards real driving conditions tests will accelerate content increase. The technical requirements for emissions regulations will also increase.

Credit Suisse sees acceleration in the adoption of emission-related technologies. Bosch is well placed to benefit from these emerging trends.

The global brokerage firm continues to view the company as a strong structural story on the back of a multi-year increase in content.

Coal India: Buy | Target price Rs 380

Citigroup maintains buy rating on Coal India with a 12-month target price of Rs 380. Round I of linkage auction concluded recently, and Round II to commence soon.

Round I for sponge iron saw muted response while Round II for cement is likely to commence in a week.

Citigroup expects CIL buyback percentage to be higher as cash is high on the standalone books. A price hike, ongoing linkage auctions does alleviate concerns on EBITDA due to wage revisions.

Britannia Industries: Buy | Target price Rs 3,115

Prabhudas Lilladher maintains a buy rating on Britannia Industries with a 12-month target price of Rs 3,115. Britannia's raw material basket is up 9 per cent YoY as against guidance of 5 per cent inflation in FY17.

"We believe monsoon will play an important role in curtailing the input prices and improving demand in rural India and small towns. Although we expect reduced promotions and 3-4% price increase to neutralise the inflation, gross margins have peaked out," said the report.

Britannia Industries trades at 29 times FY18 (excluding Subsidiary valuation of Rs 200 per share) and has seen 24 per cent correction from the peak of Rs 3,434 and 15 per cent underperformance to the Nifty50 in the past 6 months.

UltraTech Cements: Outperform| Target price Rs 3,900

CLSA maintains an outperform rating on UltraTech Cements and has also raised its 12-month target price to Rs 3,900 from Rs 3,750 earlier. The FY16 return ratios touched decade low due to continuing weak margins.

The management is hopeful of improvement in the industry fundamentals in FY17. The key positives will be an improvement in demand and limited capacity additions. The global brokerage firm believes that return ratios of organic business will improve now.

Bajaj Finserv: Buy | Target price Rs 2,445

Deutsche Bank maintains a buy rating on Bajaj Finserv and has also raised its 12-month target price to Rs 2,445 from Rs 2,215 earlier. The company could buy 26 per cent stake held by Allianz in two insurance JVs.

The global brokerage firm believes that any clarity on Allianz's stake in insurance business which could address investor concerns. Allianz call option to raise stake is expiring by end July 2016 is another factor which will fuel uncertainty.

The company's economic interest to increase, but need clarity on funding of potential deal
If Bajaj Finserv were to buy 26 per cent stake held by Allianz then co would need to pay Rs 8,000 crore.

Yes Bank: Outperform| Target price Rs 1,325

Macquarie Research maintains an outperform rating on Yes Bank with a 12-month target price of Rs 1,325 citing that the bank is its top pick owing to its excellent balance sheet, strong earnings visibility, and growth.

It said that valuations post the capital raising is compelling at 1.9 times FY18E price-to-book value and for a sustainable ROE of about 20 per cent.

PVR: Buy | Target price Rs 1,140

Motilal Oswal maintains a buy rating on PVR with a 12-month target price of Rs 1,140. DT Cinemas is expected to add significant value to PVR, as its average ticket price (ATP) and spend per head (SPH) are higher than competitors due premium locations of its properties.

“We upgrade our revenue estimates by 2 per cent each for FY17/FY18, translating into an Ebitda upgrade of 4.7 per cent and 3.6 per cent respectively. We expect PVR to record 20 per cent revenue CAGR and 26 per cent Ebitda CAGR over FY16-18," said the brokerage report.

"GST implementation could act as a huge trigger and drive further margin expansion. Maintain Buy with a target price of Rs 1,140," said the report.

Amara Raja Batteries: Buy | Target price Rs 960

Geojit BNP Paribas maintains a buy rating on Amara Raja with a target price of Rs 960 citing that post the recent price correction of about 10 per cent, the valuation looks attractive.

The brokerage said it has rolled over its valuation to FY18 with a target PE of 24 times. It expects the automotive demand to strengthen during FY17.

(Views and recommendations expressed in this section are the analysts' own and do not represent those of ETMarkets.com. Please consult your financial advisor before taking any position in the stocks mentioned.)