Bears have been in command of the D-Street for quite some time now. The BSE Sensex in the last one month alone has lost close to 5,000 points. Meanwhile, the benchmark indices- BSE Sensex and Nifty50- have dropped 4 per cent each in the current year so far. The indices gauged to second-rung stocks – midcap and smallcap stocks – have tumbled up to 5 per cent. Market experts say that rising inflation, momentum in the bond yields, constant FII outflows, rising commodity prices, war crisis between Russia and Ukraine, and supply chain disruptions are hurting the market sentiments.
Mitul Shah, head of research at Reliance Securities, said: “We expect the equity market to remain under pressure over the near term due to ongoing geopolitical issues and the Fed’s policy of rate hikes and balance sheet unwinding. However, India is a better-placed economy compared to many other global giants, therefore, we expect a revival in the economy and recovery in Indian equity markets by mid of FY23 and 2HFY23 would witness a strong rebound. We prefer the automobile, IT, and engineering sectors at this point after sharp correction fearing the impact of commodity cost inflation. We expect commodity prices to soften over the next 1-2 quarters and the negative impact of the same is priced in current valuation, post recent sharp correction.”
While the Indian markets continue to remain volatile, here are a few stock recommendations to help you sail through the rough waters by Vinod Nair, head of research at Geojit Financial Services.
“In this volatile market, it is advised to stick with sectors which are expected to be least impacted by inflation & yield rise like banking, IT (though expensive), Pharma, and themes like green energy. In addition, domestic growth sectors like Infra & Capital goods,” Nair said.
ICICI Bank
Bank showcased strong quarterly numbers with Net Interest Income growing at 20.8 per cent YoY supported by business growth and margins expanding to 4.00 per cent. Improved asset quality with GNPA/NNPA at 3.6 per cent/0.76 per cent provides comfort for further growth in valuation. Continued growth in deposits and advances, stable asset quality, and healthy provisions in place, coupled with further reductions in gross and net NPA levels will drive banks’ performance. We expect a yearly 10-12 per cent growth in credit for the bank over the next two years. Hence, we remain positive on the stock and reiterate our BUY rating.
Tata Consultancy Services
TCS continues to be one of our top picks from IT space considering the company’s robust order book and improved revenue across major verticals, coupled with key strategies on increased outsourcing and cloud adoption. Even though the peer group reports slippage in margins, TCS’s margins remained significantly unimpacted supported by the operational efficiency, lower attrition compared to peers and positive currency movements. TCS’s order book continues to be strong. Currently stock is trading at 29x 1Yr fwd EPS, which is slightly premium to the stock’s 3 Yr average of 27x.
Hindustan Unilever
Barring short-term pressure on volumes due to continuous price hikes owing to sharp increase in input price inflation and resultant margin pressure, demand to be resilient. Aided by strong GoI’s initiatives to revive economy, higher MSPs, good monsoon & sowing. Calibrated price hikes, operational efficiency, and improvement in product mix due to re-opening of markets will help to reduce margin pressure. Currently, HUL is trading at 50x 1Yr Fwd. P/E which is below its 3yr. avg. of 55x.
PNC Infratech
The positive outlook is based on a strong order pipeline from NHAI, the company maintained an order inflow target of Rs8,000 cr for FY22. The company has already submitted their bid for Rs9,200 cr (EPC 30 per cent, HAM 70 per cent) of projects and expects NHAI bids worth Rs25,000cr in the next three to four months. Currently, the stock is trading at 11x on a 1 year forward basis. which is lower to its historical avg. Given a strong order book and a comfortable balance sheet we reiterate our Buy rating on the stock.
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