With the crude oil prices surging over $100 per barrel for the first time in 7 years, the inflation in India as well as across the globe is likely to surge further.
Most experts see the crude oil prices around $100 per barrel for the coming months which can lead to a more aggressive rate hike by the US fed than anticipated by the markets.
The rise in oil prices will also lead to higher raw material prices and experts believe that post the December quarter earnings, which was impacted by the high raw material prices, it has not peaked yet.
Therefore, Centrum Broking has come out with its top picks for the March 2022 quarter and has identified stocks that are relatively immune to inflation.
Let's take a look at these top picks
1) ICICI Bank: Buy, Target price: ₹940
As we are staring at a near-term spike in inflation, ICICI Bank might be well insulated as credit growth has bounced back sharply for ICICI Bank over the last 4 quarters with all segments seeing better credit flow in Q3FY22. Also, the ICICI relies more on deposits that are stickier in nature than borrowings, positive in a rising interest rate environment.
2) LIC Housing: Buy, Target Price: ₹575
With higher inflation risk rising, LIC Housing could benefit from a NIM standpoint as 62 percent of its borrowings are longer-term in nature while most of its loan book is floating. Further, most of the stress has already been recognized and Q3FY22 earnings quality was superior as coverage on stages 1&2 improved.
3) UTI AMC: Buy, Target Price: ₹1,420
While Q3FY22 saw pressure on equity yields due to gross flows coming in at lower yields with redemption being higher. Some schemes also merged attracting lower yields. Outlook for yields is better which may mean revert in the next quarter. With flows being strong in equity, UTI could continue to gain market share being a good inflation hedge.
4) CARE Ratings: Buy, Target Price: ₹700
With the economic bounce back in sight, the capex cycle could revive leading to strong systemic credit growth. In times of high inflation, CARE could be a hedge as it runs a ratings heavy business which is largely driven by nominal credit growth. The company is betting on Infrastructure and BFSI to lead its growth. It is the third-largest rating agency in India after CRISIL and ICRA.
5) Solar Industries: Buy, Target Price: ₹2,775
The company has a robust revenue CAGR of 27 percent expected over FY21-24E due to (1) rising infra capex in India, (2) foraying in larger overseas markets (such as South Africa, Australia and Indonesia) and (3) imminent exponential growth in defense due to existing order book and a good pipeline of tenders. Margin to improve in future due to improving revenue mix with a growing share of defense and overseas segment.
6) ITC: Buy, Target Price: ₹341
Within the FMCG segment foods contribute 82 percent to revenues, and food being the largest consumption category ITC’s focus on packaged food holds huge growth potential. Its strategy is driven by building distribution scale, scale to drive margins and creating an efficient supply chain. With the fading effect of Covid, we expect a recovery in demand for consumption, Hotels, Paper board, yet Agri export remains more opportunist for the company. We expect with overall demand improvement and scale could lift margins for cigarettes as well as other businesses.
7) Titan: Buy, Target Price: ₹2,898
Titan's growth strategy revolves around store expansion and focuses on the wedding segment, driving market share gains. The turnaround in eyewear and Caratlane, cost savings to drive margin expansion. Strong store expansions across Tanishq, a rapid expansion for eyewear and huge penetration potential for Caratlane provide healthy growth opportunities ahead.
8) KNR Constructions: Buy, Target Price: ₹375
The company has a proven track record, dependable governance and sound cash flow management. A robust backlog of ₹10,800 crore provides revenue visibility till FY24 (~75 percent of FY24 revenue coming from current order backlog). Margins protected due to indexation to WPI and CPI in highway projects from the bid date. Irrigation projects, too, have cost escalation provisions.
9) Container Corporation of India: Buy, Target Price: ₹737
The firm has a strong network of 61 terminals spread across the country and focuses on consistent investments in equipment and upgradation of technology. Electrification of rail lines by 2023 is likely to save ₹14,500 crore of fuel costs per annum, which strengthens theargument for stability in haulage rates. Stronger growth and improved asset utilization will aid rebound in its RoE.
10) Adani Ports: Buy, Target Price: ₹920
It has a portfolio of strong assets with strong locational advantage and deepened hinterland connectivity. Ports as a business has pricing power and stable margins given locational advantages. Port handling costs are a fraction of overall logistics costs. About 55-60 percent of the cost structure is fixed and dependency on raw materials is not there and on fuel is very marginal.
11) Coal India: Buy, Target Price: ₹252
The world is not yet ready to switch to renewable energy and hence Coal remains the dominant fuel in foreseeable future. Domestically, the power plants are running low and the power demand is on rise due to increased industrial activities resulting supply deficit of coal in the market.
12) Dr Lal PathLabs: Buy, Target Price: ₹4,999
DLPL has been the leader in the industry. Its dominant brand and expansion across India coupled with low capital intensity enable higher return ratios. Its established network allows significant cost efficiencies and economies of scale. We believe DLPL’s ability to sustain margins and high return ratios with greater growth visibility in a post-pandemic environment will allow its higher multiples to sustain.
