Anand Rathi is focusing on these two sectors for the long term, should you?

Siddharth Sedani

Tariff hikes by the world’s two biggest trading countries – USA & China - are keeping global markets on their toes. Indian markets will watch out for the effect of this trade war, which could impact the currency, commodities and crude prices. India will benefit if crude prices get capped from making further new highs.

On the domestic front, a widespread and adequate monsoon will be crucial in containing inflation, boosting earnings growth and rural demand. We believe the monsoon and Q1 FY19 results will be the next market triggers.

For the medium to long term, we are positive on financials and automobiles. We prefer to remain with sectors where there is earnings growth and better business prospects.

Here are the stocks which can give return up to 27 percent in the short term:

Cadila Healthcare | CMP: Rs 411 | Target: Rs 489

The company expects 40-50 launches annually and is focusing on vaccines and biologics – which could be future growth drivers. It has strong ANDA pipeline in the US, with 144 filings awaiting approval of which 60+ are Para IV. It launched 20 products in the year, including g Lialda and gTamiflu and received 77 approvals in FY18, bringing cumulative filings/approvals to 330/186. The company will launch high-margin key products such as gAsacol HD & gToprol in FY19. The company has recently announced it is considering fund raising proposals of up to Rs 10,000 crore via QIP & up to Rs 5,000 crore via FCCBs. We expect 11 percent and 17 percent CAGRs over FY18-20 in revenue & earnings respectively, our target price is based on 21x FY20e EPS.

Mahindra & Mahindra Financial Services | CMP: Rs 485 | Target: Rs 609

The company’s strength in vehicle financing is showing good traction across products & geography. Its housing-finance loan growth is expected to expand 18-20 percent CAGR. The main driver for improvement in RoA would be gradual increased share of SME business going ahead. Mahindra Finance will foray into financing two-wheelers, consumer durables. Normal Monsoon, Higher farm income and Govt. spending will give boost to company’s business. The company has a strong Rural & Semi-Urban area presence – with 1284 offices covering 27 States & 4 Union Territories. The company has a healthy mix of both - (A) Vertical lending across products & (B) Geographic mix which reduces volatility & risk.

Aditya Birla Fashion & Retail | CMP: Rs 146 | Target: Rs 186

With its operations across segments and a wide retail network, it is appropriately placed, to benefit from India’s growing branded apparel industry. The firm has 2676 Exclusive Brand outlets, 4982 Multi-Brand Outlets and point of sales at leading large-format stores and Online channels.

We expect a revival in Madura Lifestyle. We believe the strong Brand image, established distribution network and expanding reach would lead to 8 percent Revenue growth and 14 percent EBITDA growth over FY18-20. A 120bp margin expansion in Madura is expected over FY18-20.

Pantaloons is on a growth trajectory - Vigorous store expansion and better Same Sales Growth - Would drive growth for Pantaloons.

Management initiatives such as reducing store size and ramping up franchised stores resulted in a turnaround as the division reported an operating profit in FY18. We expect this improved profitability to continue. We estimate it to report a ~170bp margin expansion to 7.7 percent by FY20.

Disclaimer: The author is vice president-equity advisory at Anand Rathi Shares and Stock Brokers. 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.