8 largecap & 10 midcap buys that can make you richer by 14-52% until May 2019

Motilal Oswal

The Nifty ended FY18 with profit growth of 7 percent and Nifty EPS for FY18 stood at Rs 455, up 9 percent YoY.

The March quarter FY18 earnings season exhibited a mixed picture, with a healthy performance from the Consumption and Commodity oriented sectors marred by a drag from Corporate Banks and Capital Goods.

The key highlight of the Q4FY18 results season was the continued pick-up in topline growth and margin expansion in an inflationary environment. However, higher provisions in PSU Banks and Private Corporate Banks led to a drag on the bottomline.

13/19 sectors reported EBITDA in line or better than expectations. Autos and Capital Goods missed EBITDA estimates. 13/19 sectors reported PAT in line or better than expectations. Autos, Capital Goods, Private Banks and PSU Banks missed PAT estimates.

EBITDA margin for the MOSL Universe (ex-Financials and OMCs) expanded 30bp YoY to 20.2 percent (estimates of 20.6 percent). Q4FY18 performance was entirely driven by Cyclicals. PAT for Defensives, Domestic Cyclicals and Global Cyclicals expanded 3 percent, (98 percent) and 28 percent, respectively.

Meanwhile, the hopes for a long-awaited earnings recovery in FY19 stay intact.

We are estimating Nifty EPS for FY19/20 at Rs 579/693 versus earlier estimates of Rs 577/695, growth of 27/20 percent. However, it is expected to be driven by a few cyclicals, and to that extent, has significant downside risks.

27 percent profit growth in FY19E is led by an expected rebound in profitability in corporate banks, driven by the bottoming out of asset quality. Excluding corporate banks (SBI, ICICI Bank, Axis Bank), Nifty profits are expected to post 19 percent growth for FY19.

SBI alone is expected to contribute 22 percent of incremental FY19 Nifty profits, while ICICI and Axis are expected to contribute 5 percent each.

Apart from corporate banks, other cyclicals which are contributing disproportionately to the expected Nifty profit growth in FY19 are ONCG and Tata Motors – these are expected to contribute 15 percent and 7 percent, respectively, in incremental profits for FY19.

Effectively five companies – SBI, ICICI Bank, Axis Bank, ONGC & Tata Motors – are expected to drive 55 percent of incremental profits for FY19.

Here is the list of top 8 preferred largecap and 10 midcap stock ideas that can give 14-52 percent return: