The Indian market has been getting hammered mostly on global concerns. This week, equity benchmarks saw biggest weekly loss in last four years. The Sensex shed 4.5 percent and Nifty dropped 4.3 percent. The BSE Sensex crashed more than 2 percent on Friday to end at lowest closing level since July 2014. Foreign institutional investors have sold Rs 1,287.12 crore worth of shares on Friday (as per provisional data on exchange), taking the total selling to nearly Rs 4,000 crore in September. On the other side, domestic institutional investors bought Rs 1,128.7 crore worth of shares, who have been consistent buyers since August 11.
But fret not! According to IIFL, dramatic fall in Indian equities recently, triggered by global sell‐off, offers a significant buying opportunity for investors. The best part is that one needn’t go hunting for small gems as many blue‐chips are trading at attractive long‐term valuations. “Large caps offer reasonably high business visibility and their relative attractiveness has improved with midcap valuations catching up in last few months,” it says in a note.
The brokerage recommends 11 large cap stocks as high conviction buy ideas with a combined market capitalisation of Rs 1,371,739 crore or 14.3 percent of total equity market cap. The large caps may provide a margin of safety vis‐a‐vis midand small caps in situation when volatility is expected to be high for the rest of 2015 on account of global factors.
Here are 11 largecap stocks to buy:
State Bank of India
Setting a target price of Rs 328, IIFL says SBI’s domestic loan growth is set to improve from current 5 percent year-on-year to 15‐17 percent (Y-o-Y) in FY18 on the back of economic recovery and supported by a healthy capital position. It says even a modest 12‐13 percent loan CAGR over FY15‐17 should drive a strong 25‐26 percent annual earnings growth.
IIFL has a target price of Rs 1150. The brokerage feels over the next three years core businesses will drive a strong 25 percent CAGR in standalone EBIDTA on the back of commencement of large projects‐off gas cracker and petcoke gasification. It expects recovery in gas prices over the longer term as demand remains strong for the cleaner fuel. IIFL thinks a re‐rating is due given strong earnings growth profile in the coming years.
While the credit conditions remain challenging, the bank expects lower quantum of stress assets addition in FY16 as compared FY15. Credit cost for the year is expected at 90‐95 basis points. IIFL estimates ICICI Bank to deliver healthy earnings CAGR of 18 percent and sustain RoA at robust 1.8‐1.9 percent over FY15‐17.It has a target price of Rs 380 per share.
An increase in share of non‐power sales volume would lead to higher realisations for the company as sales to non-power consumer is done at 30‐35 percent premium to FSA rates. Coal India is expected to report an increase in its margins led by higher production, reducing man power headcount, increased outsourcing and lower oil prices. Downside from current levels would be supported by strong dividend yield, with a target of Rs 454 per share.
With a target price of Rs 3956 per share, IIFL says the company has immense room for growth in the core biscuit segment. Apart from cost rationalisation, key trigger for margin expansion from hereon will be premiumisation, increased focus in international business and aggressive roll‐out in higher margin business like cakes, rusks, dairy & snacks.
Larsen and Toubro
The company has guided for 15 percent order inflow growth on the prospect pipeline for balance FY16. Revenue growth likely to be strong over the next three years as IIFL expects execution to pick up in the domestic market from H2 FY16. Management has guided for margin expansion of 100 bps in FY16. IIFL has a price target of Rs 2161.
Axis Bank may deliver healthy earnings CAGR of 18 percent over FY15‐17 in spite of a marginal softening of NIMs. The return on asset and and return on equity (RoE) may remain stable at 1.7 percent and 17‐18 percent respectively over the period. IIF says for significant re‐rating, the bank needs to deliver on its asset quality guidance. It has a target of Rs 650.
IIFL thinks absolute volumes from China will only improve from levels reported in Q1 FY16. XE can drive volumes for Jaguar portfolio as Evoque did to Land Rover portfolio. LCV segment is also expected to pick up from H2 FY16. Fall of 30% in the past three months has more than factored in the weakness and IIFL expects an earnings CAGR of 18 percent. It has a revised target price of Rs 485.
IIFL says the pharma company is clearly building a differentiated product portfolio with large sub segments within the complex generics space and focus on vaccines and inhalers. It forecasts 22 percent earnings per share (EPS) CAGR and margin ramp up of 270 bps over FY15‐17E. It has a target of Rs 960.
The management expects asset quality to remain sanguine in FY16 and therefore credit cost would likely be lower than budgeted 55‐60bps. A strong asset growth and NIM expansion would drive 30 percent annual earnings growth over FY15‐17 for IndusInd Bank. Industry‐best RoAs of 1.9‐2 percent and robust profit growth calls for incremental valuation re‐rating of the stock, says IIFL. Target price is Rs 1111.
IIFL believes valuations are sustainable given the strong earnings CAGR expectation of over 50 percent. It thinks there is high probability of the company meeting its 2020 targets considering its strong track record and good visibility provided by the customers. Target price is Rs 400 per share.
Posted by Nasrin Sultana