BofA Securities prefers these five stocks to beat the volatility

Global brokerage firm BofA Securities believes that the ongoing volatility in the domestic equity market is like to stay in 2022 due to geopolitical and other events on the horizon. Of late, the benchmark BSE Sensex and NSE Nifty have cracked over 11 per cent since the peak of October 2021. A couple of factors like the new Covid-19 variant Omicron, Russia-Ukraine crisis, hopes of faster than expected rate hikes by the US Fed and now the boiling crude oil prices have weighed sentiment.

Going ahead, the overseas firm said that any rate hike by the Reserve Bank of India (RBI), potentially stronger dollar and mounting crude oil prices will drive sentiment.

However, it said, “Our bottom-up analysis revealed that industrials, discretionary, cement, metals and IT delivered higher returns during Nifty recovery cycles.”

“We continue to recommend caution, at least in the immediate term,” BofA Securities said, adding they prefer stocks like Tech Mahindra (Price objective: Rs 1,665) and HCL Technologies (PO: Rs 1,315) in the IT space.

Commenting on IT majors, BofA Securities said, “There is also improved demand outlook for the broader IT sector amidst accelerated adoption of cloud and digital technologies,” it said.

It further added that analysts at BofA Securities also like stocks such as Bharat Electronics (PO: Rs 241), Shree Cement (PO: 30,700) and Hindalco (PO: 655).

BofA Securities said that there is a higher probability for Shree Cement to build itself as a national cement player with sustainable cost advantages and efficient capital allocation.

Sharing its view on Hindalco, BofA Securities said that it valued Hindalco India aluminium operations at an FY23E EV/EBITDA of 6 times, in line with the through cycle multiple for Indian aluminium players. It also valued the India copper operations at an EV/EBITDA of 5 times, which is at a discount to the through cycle for copper business’ listed peers (Jiangxi Copper and Sumitomo Metal Mining).

“We believe that discount is justified as Hindalco’s copper operations do not have access to any captive concentrate supplies, unlike its peers. Cumulatively, these contribute Rs 326 per share to our valuation. We value Novelis-Aleris combined entity at FY23E EV/EBITDA of 7 times, in line with the through the cycle for Novelis’s listed peer, and contributes Rs 301 per share to valuation, with the rest (Rs 28 per share) being contributed by investments,” the overseas firm said.