After a weak August, Indian indices again turned positive in September. While benchmark Sensex rose 1.5 percent in the last month, broader index Nifty gained 2 percent. In comparison, both indices were down 2.5 percent in the month of August. Before that, the benchmarks surged over 11 percent between March and July.
But it is important to note that there was a vast divergence between the first and the second half of the month. In the first half of the month, the benchmarks hit new highs, with the Nifty breaching the 20,000 mark on the back of robust buying by domestic investors and a successful G20 summit, which has drawn the attention of global investors towards the Indian markets.
However, some consolidation was seen in the markets in the second half of the month as foreign investors turned sellers for the month amid a rise in crude oil prices, a jump in US bond yields, resurfacing inflationary fears, and overall poor sentiment in global peers. Furthermore, high valuations and profit booking after hitting new peaks also led to a fall in sentiment in the latter half of the month.
With domestic macro data remaining mixed in the month of September, experts remain watchful for the coming months due to weak global macros and lower scope for a fiscal-related boost to consumption. They believe that the longer trajectory of higher global interest rates, higher oil prices and re-emerging pressures on profitability are new headwinds for the Indian market, which is already trading in the premium valuation band.
Going ahead, investors will keep a close eye on the upcoming Q2FY24 earnings season, crude price movement, US bond yields, Fed actions and their impact on RBI policy meet, geopolitical developments (latest Israel conflict, etc) and finally the upcoming assembly elections. Experts advise investors to follow a stock-specific approach based on the fundamental merits of the stock.
Amid this backdrop, brokerage house InCred Equities has come out with 19 high conviction ideas for the month of October with 16 'add' calls and 3 'reduce'.
Stocks with ‘add’ calls include Ashok Leyland, BCL Industries, Bharat Electronics, Bharat Forge, Camlin Fine Sciences, Container Corporation of India, Dalmia Bharat, Globus Spirits, HDFC Bank, KEI Industries, Mahindra & Mahindra Finance, Maruti Suzuki, Reliance Industries, Spandana Sphoorthy Financial, Thermax, and UltraTech Cement.
Meanwhile, the 3 stock ideas with 'reduce' calls are - Clean Science & Tech, InterGlobe Aviation, and Tata Steel.
Among the stocks with 'add' calls, the brokerage sees the multibagger returns in Globus Spirits with 234 percent upside, followed by Camlin Fine with 83 percent upside and BCL Ind with 73 percent upside.
Expansion in gross profit margin due to a rise in the selling prices of Indian Made Indian Liquor (IMIL) and softening broken rice and energy costs, stabilisation of its newly commissioned plant in Jharkhand, completion of expansion projects in Bihar and West Bengal, foray into new markets in the Indian Made Foreign Liquor (IMFL) segment, and launch of new products in the IMFL segment are key business triggers for Globus going ahead, said InCred. It has a target price of ₹2,929 for the stock.
For Camlin, the brokerage arrived at an EPS of ₹15.1 for FY24F and ₹21.8 for FY25F. It has a target price of ₹300.
For BCL, the brokerage has a target of ₹925. It is bullish on the back of the company’s new plant in West Bengal, strong tailwind in ENA business, ethanol plant, with a capacity of 200klpd in Punjab, among others.
Apart from these, the brokerage sees between 20 percent and 44 percent potential upside in CCI, M&M Fin, RIL, Spandana Spoorty, and HDFC Bank stocks.
Reduce Calls
Clean Science: The brokerage has a target price of ₹660 for the stock, indicating a downside of 53 percent. Hindered amine light stabilizer (HALS) is perceived as a panacea for Clean Science and Technology, however, entry barriers in this business are high, said the brokerage. Also, the assumption that it will garner a 10 percent market share in a highly competitive market is misplaced, it added. The company has no sustainable advantage over rivals as margins are falling and the foray into the competitive TBHQ +PQ space shows growth avenues are lacking in its current portfolio, further noted Incred.
InterGlobe: The brokerage has a target price of ₹1,600 for the stock, implying a 33 percent downside. As per the brokerage, business travel is likely to be muted as the COVID-19 pandemic altered the entrenched habit of air travel for meetings. Further, the insolvency filing by rival Go First (7 percent market share in Mar 2023) is likely to improve the profits of other players in the short term. However, the history of Indian aviation reveals that supernormal profits are short-lived, noted the brokerage.
Tata Steel: The brokerage has a target price of ₹82 for the stock, implying a 36 percent downside. The brokerage expects a global shortage of coking coal due to sub-par investments in Australia. Europe must rely on blast furnaces (BFs) as electric arc furnaces are unviable due to higher scrap prices and electricity prices. On the other hand, BFs will make at least a positive gross profit in Europe. Pollution fears are forcing China to become a voracious user of scrap, leading to a scarcity of old scrap. Scrap prices are rising, which is a further negative for European steel-makers. Thus, production will shift to BFs, leading to higher coking coal prices, it noted. Also, European power prices will rise again, which will make the production shift to BFs even more pronounced. An oversupplied steel market, rising costs, and slowing demand are a recipe for buying steel names at 0.5x book value. Tata Steel is away from that. Its balance sheet will deteriorate (contrary to the consensus estimate).
Apart from these 3, the brokerage also sees downside in Damlia Bharat (-8 percent), KEI Ind (-2 percent), and Thermax (-7 percent).
