Overall experts said risks in 2019 could be tighter global monetary conditions, higher-than-expected crude oil prices and an escalation in China-US trade hostilities.
It looks like the market will end the year 2018, which was a tough year due to many domestic and global factors, in the green. The BSE Sensex, so far, has gained more than 5 percent year-to-date and Nifty has rallied around 2.5 percent.
The prominent reasons for the volatility in 2018 were sharp swing in oil prices & rupee movement, state elections, NBFC liquidity crisis and FII outflow after Federal Reserve's interest rate hikes.
HDFC Securities said the markets got narrower due to various measures by the regulators, some of which were necessary due to disappointments for investors caused by corporate governance issues at some companies.
FIIs changed their view on India following rising rates abroad and poor corporate earnings growth in India, it added. Approaching political slug fest also dissuaded some investors, it reasoned.
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The broader markets were hit badly due to high valuations. The BSE Midcap index, so far, have fallen around 15 percent and smallcap plunged 25 percent in 2018 after witnessing a 48 percent and 59 percent rally in the previous year.
The year 2019 is also expected to be volatile but the market is likely to shift its focus from elections in first half of the year to earnings, GDP growth and global factors in second half when the indices may make an attempt for new highs, experts said.
Sanjeev Zarbade of Kotak Securities told Moneycontrol that given the recent tailwinds coming from macros (i.e. lower crude prices, INR appreciation, strong RBI measures on liquidity front & possibility of rates cuts in the near future), he expects 10,000 to be the floor for Nifty.
Overall, experts said risks in 2019 could be tighter global monetary conditions, higher-than-expected crude oil prices and an escalation in China-US trade hostilities.
As volatility is likely to be higher in 2019 given the upcoming general elections and global uncertainties, here are 17 top picks from various sectors which will add sparkle to your portfolio and balance out risk-rewards:
Brokerage: Nirmal Bang
Sharpening focus on the retail and SME segments while building revenue as well as profit momentum (loan/PAT CAGR of 15 / 71 percent, respectively, over FY19-21E), up-fronting recognition of problem assets and transformation into a granular and higher RoE business, combined with cheap valuations at 1.2x FY20 ABV provides a good scope for re-rating.
ICICI Bank is in the midst of an improvement in operating environment (stressed asset resolution and growth pick-up) and is showing healthy signs of earnings normalisation. With challenges related to management transition getting addressed, the focus of the bank is now on growing core operating profits.
We expect the bank to deliver an all-round improvement in asset quality, growth and margins over the next few years, thereby leading to a structural shift to higher ROE levels. Valuations at 1.5x Adj. BV (post adjusting for value of subsidiaries) appear attractive.
Strategic initiatives such as (i) selling off of loss-making hotels, (ii) focus on technology to reduce distribution cost, (iii) cost-rationalisation, (iv) increase in ARR of corporate clients, (v) higher room addition under management contracts and (vi) deleveraging of balance sheet are expected to drive earnings, going forward.
Also, with demand likely to outpace supply over the coming few years, pan-India ARR is likely to improve in both the corporate and individual segments. Valuations at 20x/16x FY20/21 EV/EBITDA appear reasonable considering the upcycle has just commenced. ROE is likely to improve from 2.3 percent in FY18 to 7.7 percent in FY20.
Over the years, VGL (global retailing company) has positioned itself as a strong player in discount electronic retail segment. It provides an unmatched value proposition of offering lowest average selling price in addition to all options, which competitors offer. It has the benefit of low-cost base, which gives it leverage in competing with other players.
We like the asset-light business model of VGL and we believe that the company is ready for its next leg of growth journey. We expect sales to grow at a CAGR of 15 percent during FY18-21E and EBITDA margins to improve from 9.4 percent in FY18 to 11.5 percent in FY21E.
Welspun is one of the largest steel pipe manufacturers in the US market with a market share of 25 percent to 30 percent. The order book from the US for WCL is currently around 5.24 lakh tonne with visibility till December 2019. These orders are at much higher EBIDTA per tonne.
As on 30th September, WCL has an order book of 1.723 million tonne valued at Rs 14,800 crore, which is a clear visibility for the next two years. WCL plans to be net debt zero by the end of FY20. With higher cash generation, it intends to give it back to its shareholders in the form of higher dividend/buy backs.
PI, an agrochemicals company, has a niche patent-led exports business in terms of CSM and in-licensed products from global innovators for the domestic markets. The cyclical global recovery along with inventory build-up across the value chain is likely to accelerate the demand for agrochemicals both globally and in the domestic markets.
FY18 was a muted year for the company, but we believe, PI would bounce back much stronger and is likely to post strong growth and improved margins, going forward.
Although over FY15-18, dollar revenue had grown at a slower pace of 3.9 percent CAGR including inorganic growth, the initiatives of acquisitions and being digital itself, has bridged the gap in company's service portfolio.
Some of the growth drivers for the future of the company are having presence in the growing industry, Next Gen Delivery Model, increased wallet share in digital spend, strategic investments and cross selling to existing accounts. Higher growth and sale of its non-core business will improve the company's margins in the future. At the current market price (CMP), the share is trading at 13.1x FY20E EPS and looks attractive.
Brokerage: HDFC Securities
ACC's utilisation at 88 percent in Q3CY18 was the highest in 10 years. Non-trade cement prices have recovered in most regions from lows and the gap between trade and non-trade has narrowed to normal levels of 8-10 percent.
Robust growth in value added premium products and better pricing outlook are key positives for the company. The recently announced expansion, made for the first time since 2011, will add visibility to topline over the next few years. Current relative low valuations (CY19 EV/Ton of around $100 versus $135-190 for its similar sized peers) also offer a reason to get excited.
Axis Bank remains well-capitalised (Tier-1 ratio of 13 percent, CET1 ratio of 11.7 percent) to fund around 17 percent asset growth over the next two years. The bank has made significant investments to ride the next growth cycle (post near-term asset quality challenges) with strong capitalisation and an expanding liability franchise.
With an improving outlook on fresh slippages/credit costs, we expect earnings to start normalising from second half of FY19 onward. The change of guard at the top should bring in fresh perspective and result in rerating for the stock. At the current levels, the worst seems to have been priced in, and the bank is available at attractive valuations.
The company is consistently paying dividend to its shareholders from the last 24 consecutive years. In FY18, it declared dividend of 650 percent, i.e. Rs 6.5 per share yielding 1.5 percent.
We expect the revenue of the company to grow at 15 percent CAGR and net profit to grow at 12 percent CAGR between FY18-20E. Margins might remain stable at around current level of 11 percent and Debt to Equity ratio is expected to inch down at 0.6 by FY20 compared to 0.9 in FY18.
We estimate 8 percent revenue, 14 percent EBITDA and 15.5 percent PAT CAGR, over FY18-20E on the back of lower base and strong growth in domestic power brands, especially from OTC segments.
The stock is available at an attractive valuation of 14x FY20E EPS. Company has strong track record and has very well-known brands portfolio in domestic market. Despite resemblance to MNCs, FDC is available at more than 30 percent discount.
We expect company would post faster revenue growth led by Exports formulations as company launches its products in US markets and also due to traction from EU markets. Moreover, the company has strong hold on some of its products in ORS, Anti Infectives and Cardiac and those products would continue to do well in domestic market.
We believe ITC can outperform hereon, driven by (1) Recovery in rural consumption which accounts for 2/3 of smokers, many of whom are upgrading themselves from Beedis (2) Expectation of a stable tax environment (3) Favourable base and (4) A clamp down on the illicit trade and (5) Rising contribution from FMCG Business. In such a scenario, ITC can deliver mid-single digit volume growth over FY18-21E.
Our 8 percent revenue CAGR estimate over FY18-21E looks reasonable versus 10 / 9 percent CAGR in last 10/5 years. At 24.5x FY20E EPS, ITC trades at an unfair discount of around 35 percent to the sector.
The company is expected to be a major beneficiary of railway capex in India as yearly order-inflow from railways increased by 10x over last few years. Company sees Rs 30,000 crore opportunity from railways.
We recommend buy on the thesis that: 1) steady domestic transmission capex & buoyancy in international transmission space; 2) Indian Railways' burgeoning capital expenditure; 3) strong order inflows & order book matrix; and 4) improvement in execution & cost efficiency measures. We expect company to deliver around 20 percent profit CAGR led by 50bps margin expansion over FY18-20E.
MFL will continue to benefit from its long standing presence and good knowledge of the gold loan segment. Increasing share of non-gold loans would de-risk its portfolio concentration and provide cushion to AUM growth. Also the same assets would be utilized to cross sell products, leading to lower cost-income ratio.
Brand building by roping in Amitabh Bachchan as brand ambassador and partnering with IPL team Chennai Super Kings would give it a pan-India visibility. Resolution of overdue gold loan accounts would bring down the NPA levels in the coming years.
We believe company may post 11.2 percent revenue and 15.4 percent PAT CAGR over FY18-21E. As consumer and telecom segment gets bigger, they would post better earnings growth.
Telecom (RJIO) is expected to see around 27 percent revenue and 77 percent PAT CAGR over FY19-21E. By end of FY21, Reliance Jio may end up with around 41 crore subscribers for the Jio.
We expect Subros' core PV AC business will continue to deliver strong growth led by steady volume growth of MSIL, shift in demand towards petrol variants plus rising wallet share in other key OEMs. More importantly, growth visibility of new businesses like Truck/Bus Aircon, radiators and Condensers is strong and provides scale and diversification.
Total revenue of the company is expected to post 14.3 percent CAGR over FY18-21E. We expect EPS CAGR growth of 32 percent over FY18-21E.
We expect 16 percent revenue and 29 percent PAT CAGR over FY18-20E. Strong revenues and margin expansion in FY20 would drive robust growth in profitability.
The Stock trades at around 15x FY20E EV/EBITDA and around $165 FY20 EV/MT. Given the fact that Ultratech is one of the largest cement player in India and strong sustainable financials we believe company would continue to trade at premium over mid-sized cement companies.
Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
