Amid a highly volatile past month that witnessed remarkably mixed performance across sectors, market caps and style indices. The previous month turned out to be a rather eventful month, mainly due to a surge in volatility, as higher inflation in the US market and aggressive rate hikes by the US Federal Reserve resulted in weaker economic signals around the world. In addition, the RBI also surprised the market with a 40 basis point hike in the Repo rate in an unscheduled MPC meeting, further accentuating negative sentiment.
Axis Securities, commenting on how markets are expected to perform in June, said that “the market is currently monitoring central bank guidance on interest rate trajectories. The RBI’s MPC meeting is scheduled for this week and policy action will determine the direction of the market in the short term.”
Nishit Master, Portfolio Manager, Axis Securities, said: “Investors should diversify their investments across time frames (systematic investments) and equities (diversification into at least 12-15 stocks) during these volatile periods. Investors should also carefully weigh the risk-reward opportunities for each stock based on all foreseeable variables for the stock before making a final purchase of a stock.”
Axis Securities has picked a number of stocks that they believe can yield up to 56 percent returns. June basket includes ICICI Bank, Bajaj Auto, Tech Mahindra, Maruti Suzuki India, State Bank of India, Bharti Airtel, Cipla, Federal Bank, Varun Beverages, Ashok Leyland, Astral Ltd (India), Bata India, APL Apollo Tubes, HealthCare Global Enterprises, Praj Industries, CCL Products (India).
A few of these stocks from June’s basket are below:
ICICI Bank outperformed its competitors and ticked most of the boxes in terms of growth, margins and asset quality. Higher credit growth, better corporate earnings and a strong provisioning buffer combined with a strong deposit franchise will help the bank deliver on its ROAE/ROAA expansion over FY23-24E. “In terms of valuation, we believe the bank is still in a comfortable position. We maintain a BUY on the stock with a revised target price of Rs 1,000/share (SOTP core core book at 2.8x FY24E and Rs 173 Subsidiary Value),” said Axis Securities.
Tech Mahindra is India’s leading IT services provider to many business conglomerates. We believe that Tech Mahindra has a superior mix of services and multiple long-term contracts that are well spread across the various industries, reducing its reliance on a single industry. In addition, we foresee healthy traction in the communications and enterprise sectors that will significantly accelerate the company’s revenue growth going forward. “We recommend a BUY rating on the stock and assign a 20x P/E multiple to the company’s FY24E earnings of Rs 83.7/share to arrive at a TP of Rs 1,700/share. TP implies a 44 percent increase in CMP,” the brokerage firm said.
MSIL could become the main beneficiary of the demand recovery in the post-COVID period, given its strong entry-level position and favorable product life cycle. New launches aimed at filling the gaps in its portfolio are likely to improve the overall product mix. The company would continue to gain market share, driven by an expected shift to gasoline and CNG vehicles. Going forward, we expect new product launches to resume with a mix of product upgrades and new model launches. “We expect the company’s volumes to see a strong CAGR of 16 percent over FY22-24E. We have a BUY rating for the stock with a TP of Rs 9,800, with the stock valued at 27x FY24E EPS, representing a 27 percent increase in CMP,” the company said.
National Bank of India
Of the PSU banks, SBI remains the leading player in the gradual recovery of the Indian economy due to its healthy PCR, robust capitalization, strong liability franchise and improved asset quality prospects. We believe that normalization of credit costs and improved growth prospects should lead to double-digit ROEs of ~14-15 percent over FY23-24E. Against this background, we maintain a BUY recommendation for the stock with a revised target price of Rs 665/share (SOTP base book at 1.3x FY24E and Subsidiaries at Rs 185)
Bharti Airtel is one of the largest telecom companies in the world with operations in 18 countries and a subscriber base of more than 420 Mn. We recommend a BUY rating for the company with a SOTP based valuation of Rs 900/share helped by superior margins, stronger subscriber growth and higher 4G conversions.
Cipla One India Rx’s business has increased EBITDA margins by ~500bps from FY17-FY22E, led by continued efforts in digital platforms, field service productivity and tight cost control. The expansion of the ventilator portfolio would encourage strong operating leverage in the US business, which together with continued high-single digit growth in the Indian business and further cost optimization would increase the company’s RoIC by ~200bps to ~18% versus FY21- FY24E.
CCL Products (CCLP) was founded in 1994 as an export-oriented company engaged in the worldwide production of instant coffee. CCL Products is one of our beliefs of BUY with a revised TP of Rs 560/share (Rs 585/share previously) as we continue to value it at a P/E ratio of 23x the FY24E EPS.
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