The banking crises in the US and Europe had an impact on the equity market in the early part of March, however, the market recovered in the latter half of the month to end on a flat note.
The banking crisis has been well contained so far, and is not likely to turn into a global financial crisis, noted brokerage house Nirmal Bang in a recent report.
Commenting on the strategy going ahead, the brokerage pointed out that a very good correction has been seen in energy and shipping freight costs in the last 3 months apart from a correction in some basic commodities. This is likely to benefit companies in reducing their raw material and operating cost and can improve margins, it said.
"We are likely to see a reflection of the same in sectors like FMCG, Pharma, Chemical, Cement and Metal in Q4 results. Though volume and sales growth will remain key concerns in Q4 results; overall results are likely to show some positive direction especially driven by margin improvement," forecasted the brokerage.
Nirmal Bang expects the market to remain in a range, but some of the mid-cap and small-cap stocks are expected to gain. It sees the benchmark Nifty50 remaining in a range of 16,900-17,600 for the month of April.
The brokerage has listed 2 fundamental and 2 technical picks for the month. Let's take a look:
Elecon Engineering: The brokerage is bullish on the stock with a target price of ₹520, indicating an upside of 30 percent.
Elecon is a manufacturer of industrial gears (90 percent mix) and material handling equipment (MHE) (10 percent mix). It is a play on industrial capex across various sectors, especially in cement, steel, power, and sugar sectors, noted Nirmal Bang. It is the leader in industrial gears with a market share of 35 percent in India.
"Strong industrial capex is likely to drive higher utilisation in the industrial gear segment. We envisage particularly solid demand from the steel and cement sectors (around 30 percent of Elecon’s sales) based on announcements made by major players," it said.
Elecon offers strong growth visibility with an improving balance sheet and the brokerage expects a CAGR of 18 percent in both revenue and profit over FY23–25E, driven by a robust demand environment. This will be accompanied by ROCE (Return on capital employed) improvement from 17 percent in FY22 to 29 percent by FY25E, it added.
The stock has given multi-bagger returns in the last 1 year, up 130 percent and has added 17 percent in 2023 YTD. It surged 12 percent just in April so far after a 3 percent fall in March. In Jan and Feb, the stock rose 6 percent and 2 percent, respectively.
Vishnu Chemicals: The brokerage has retained its positive call on the stock with a target price of ₹358, indicating an upside of 17 percent.
Incorporated in 1989, Vishnu Chemicals Ltd (VCL) is one of the leading players in the manufacturing and sales of chromium chemicals and barium compounds across the world.
Given that the soda ash prices remain stable or rise, backward integration in the chromium vertical bodes well to sustain VCL’s gross margins, noted Nirmal Bang. Further, the company’s focus on innovation to strengthen its product mix will drive the business growth over the long term, it added.
The firm has generated revenue growth of 13.6 percent between FY18 and 22, led by the addition of chromium derivative products into its product portfolio since 2019. This augured well to improve VCL’s average capacity utilisation from 60 percent in FY16–18 to 80 percent in FY19-22, said the brokerage. Operating margins improved by 235 bps while PAT grew by 54 percent CAGR between FY18 and 22, it added. VCL maintained debt to equity ratio of 0.9x as in Sep’22 with a total debt of Rs. 350 crore. It aims to achieve a D/E ratio of 0.6x or below within a year and the upcoming capex is expected to be funded through internal accruals, informed Nirmal Bang.
The stock has fallen 5 percent in the last 1 year and has been completely flat in 2023 YTD. While it has gained 11 percent in April so far, the stock has given negative returns for 5 straight months before this, falling 29 percent since November 2022.
Nifty Technical Outlook
In March, the Bears led the rally while the Nifty experienced a breakdown of cluster support at 17,200 and extended downfall up to the 16,830 mark. Although the sentiment on D-Street was cautious, the stocks were performing well and a pullback rally was observed, driving the Nifty in an upward direction, informed Nirmal Bang.
Currently, the Nifty is trading in the downward sloping channel, taking the support of the downward trend line and showing a pull back rally, suggesting a potential upmove in the near term. On the technical ground, Nifty has an immediate resistance at the 17,400 mark. Any move above the 17,400 mark - we may witness a positive move towards 17,600/17,700. On the flip side, 17,000 will act as a strong support, it added.
The overall view is cautious; pull back rally can't be denied after such a fall. Market participants are advised to be stock-specific and stay light with any major long positions, suggested the brokerage.
Petronet LNG: Technically, the quarterly chart suggests that the stock is on the verge of giving a breakout of the Pennant pattern, suggesting a potential upmove, noted the brokerage. It added that the stock's daily chart indicates that the stock is trading above all the important moving averages, suggesting a potential upmove in the near term. An interesting fact is that the stock is on the verge of showing a positive RSI crossover.
“Add on dips at ₹220 for a Target of ₹270 with a strict stop loss of ₹210,” advised Nirmal Bang.
The stock has gained 17 percent in the last 1 year and around 8 percent in 2023 YTD.
Godrej Consumer Products: As per the brokerage, the stock's monthly chart suggests that the stock is forming a Pennant pattern and a breakout of the downward-sloping trend line.
"Godrej Consumer will witness an upmove in the near term. The stock is well placed above all its important moving averages. Technically, the stock has made a formation of a flag pattern on its daily charts. Momentum indicator, RSI shows positive crossover in its Monthly charts," it said.
“Buy Godrej Consumer above ₹966, add on dips at ₹940 for a Target of ₹1,070 with a strict stop loss of ₹925,” it suggested.
The stock has risen 19 percent in the last 1 year and has added 10 percent in 2023 YTD.