Indian indices have risen around 1.6 percent in November so far after an over 5 percent jump in the month of October. The rally was led by positive global cues like softening of crude prices, robust festival demand as well as an improvement in the overall economic situation.
Also, a moderation in the US inflation numbers for the month of October helped lift investor sentiments. Retail inflation in the US rose by a less-than-expected 0.4 percent for October and 7.7 percent from a year ago, which was its lowest annual increase since January this year.
In the near term, experts believe that the Indian market will continue to follow the Q2FY23 earnings and macroeconomic data.
"We continue to believe that the medium-term attractiveness of India as an investible equity market remains due to its IT services with strong global demand, rising visibility of capex across Public Infra, PSUs, PLI, Defense, Digitisation and Data Centres and expected gains from China+1 supply chain realignment in Pharma, Chemicals, Textiles etc," said HDFC Securities in a note.
The brokerage expects India’s outperformance to sustain due to extremely favorable long-term fundamentals as compared to any other economies; near/medium term headwinds like higher interest rates, tight liquidity (domestic and global), weakening rupee, pent-up demand in FY22/23, and slowing global growth, etc, may lead to bouts of small corrections.
Amid this backdrop, domestic brokerage house HDFC Securities has come out with 3 fundamental picks with a time horizon of 2-3 quarters.
Let's take a look:
Indraprastha Medical Corporation: The brokerage believes the base case fair value of the stock is ₹75.75 (7.7x FY24E EPS) and the bull case fair value of the stock is ₹83.25 (8.5x FY24E EPS) over the next 2-3 quarters. Investors can buy the stock at between ₹66.5-68.5 and add on dips to ₹59 band (6x FY24E EPS). At the LTP, the stock is trading at 6.9x FY24E EPS.
"Due to pandemic-induced lockdowns, the healthcare companies in India were severely impacted. There was a significant drop in patient footfall—be it a single specialty, multi-specialty, tertiary-care hospitals or even diagnostics businesses, during this time. The financial performance of IMCL was also impacted due to the same, however, as the situation has stabilized, the company’s business has also got back on track. There was a 45 percent jump in revenue and margins again also improved to 13 percent in FY22 vs 6.6 percent in FY21," rationaled the brokerage. It added that the company has negligible debt on the balance sheet and has been paying healthy dividends to its shareholders.
It envisages a 13 percent CAGR in revenue and 24 percent CAGR in Net Profit over FY22-24E.
The stock has risen 7.5 percent in the last 1 year and 9.5 percent in 2022 YTD. It has surged 18 percent in November so far followed by an 11.5 percent jump in October.
Steelcast: The brokerage believes the base case fair value of the stock is ₹493 (13x FY24E EPS) and the bull case fair value of is ₹531 (14x FY24E EPS). Investors can buy the stock in ₹439-448 band (11.7x FY24E EPS) and add more on dips in ₹394-402 (10.5x FY24E EPS) band.
"The company’s performance has improved in the last 2 quarters and the management has given decent guidance for both order book and revenue growth. We expect the company’s revenue and profitability to improve even as it has a clear focus to reduce the concentration to a particular segment. It will be focusing on railroad industries, to increase the customer base and number of parts. Going ahead, we could witness strong traction for SCL’s products with a strong order book for the next few quarters," it explained.
The company has also signed a long-term supply agreement with a large Original Equipment Manufacturer in the USA to supply steel castings for the Northern Rail-Road Industry. This new agreement will help the company to de-risk the business by reducing industry concentration and further consolidating its position in the overseas market, noted HDFC. It expects SCL’s Revenue/EBITDA/PAT to grow at 37 percent/41 percent/52 percent CAGR over FY22-FY24E backed by strong volume growth and a healthy order book.
The stock has surged 51 percent in the last 1 year and 56 percent in 2022 YTD.
Equitas Holdings: As per the brokerage, investors can buy EHL between ₹100-104 and add more on dips to ₹92 band. It expects the Base case fair value of ₹110 (1.08x Mar-24 ABVPS and 10 percent holding company discount) and the Bull case fair value of Rs.117.5 (1.15x Mar-24 ABVPS and 10 percent holding company discount) over the next 2-3 quarters.
"Numbers reported over the past 2-3 quarters show that there has been significant improvement in terms of business growth and the asset quality numbers also seem to be improving. Management has guided for 30 percent growth in the loan book and 1.5 percent credit cost for FY23. The bank has a healthy capitalisation level post recent fundraise via QIP," stated HDFC.
It has envisaged a 20 percent CAGR in NII and 27 percent in net profit over FY22-24E, while the loan book is estimated to grow at 25 percent CAGR over the same time frame.
The stock has fallen 21 percent in the last 1 year and is down 7 percent in 2022 YTD.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.