Nifty 50 has seen sectors such as industrials, discretionary, cement, metals, and IT outperform the index in every recovery cycle seen since October 2021, said analysts at Bank of America. Analysing nine correction and recovery cycles since October last year, BofA analysts earmarked sectors that outperformed the market during the recovery phase and those that underperformed during the correction phase. Based on their analysis, BofA analysts have picked Bharat Electronics, Tech Mahindra, HCL Technologies, Shree Cement, and Hindalco as stocks to buy for investors during a recovery phase such as the current one.
Volatility to continue this year
BofA analysts said markets have been volatile post peaking in October 2021, with nine distinct cycles, of which five were corrections and four were recoveries. The global brokerage firm acknowledged that history may not necessarily repeat but says past movements could serve as some reference going forward, while adding that “volatility is only likely to continue given the current environment”.
The year 2022 has been marked by key events so far and the same is likely to continue ahead paving the way for volatility. The US Fed rate hike will come later this month, followed by the RBI repo rate hike later this year. Higher crude prices this year and more state elections are expected to add to the volatility.
What to buy?
Bharat Electronics – price objective: Rs 241
The company is valued 20x two-year forward earnings, which is slightly below +2SD levels to its long term average multiple. “We think premium valuations are justified given robust ordering outlook on govt’s Make in India push and ambitious diversification plans having the potential to provide additional growth avenue,” BofA said.
Tech Mahindra – price objective: Rs 1,665
The set price objective is based on 21x estimated P/E for the 12 months ending Mar 2024E. Tech Mahindra has been ascribed the given multiples improved demand outlook for the broader IT sector amidst accelerated adoption of cloud and digital technologies, and improved margin profile.
HCL Technologies – price objective: Rs 1,315
The Reduced dependence on infrastructure services as a driver of growth, worst of risks now behind in the software business and, improved demand outlook for the broader IT sector are seen as positives for the stock.
Shree Cement – price objective: Rs 30,700
The target price set is based on FY24E forward EV/EBITDA value of 20x. “Our target multiple is at 10% premium to our target multiple for sector leader Ultratech given the company’s rise as 2nd largest cement producer in India, higher probability of company building itself as a national cement player, sustainable cost advantages and efficient capital allocation,” BofA said.
Hindalco – price objective: Rs 655
The brokerage firm values Hindalco India aluminium operations at an FY23E EV/EBITDA of 6x. The India copper operations are valued at EV/EBITDA of 5x — a discount to peers. “We believe that discount is justified as Hindalco’s copper operations do not have access to any captive concentrate supplies, unlike its peers,” they said. The stock is up 24% so far this year, sharply outperforming the benchmark indices.
