Frontline stocks that have been beaten down badly in the October mayhem may offer good long-term potential for investors willing to stick their necks out and buy them at attractive valuations, analysts and equity experts say. Many of these stocks such as Bharti Airtel, BHEL, Hindustan Unilever, are fundamentally strong companies with sound management in fast-growing areas of the company, they add. "We like stocks like RIL, Bharti Airtel, HDFC Bank, BHEL and GAIL. Though the downside risk is linked to the market, these companies have solid business fundamentals. They are leaders in their respective businesses and have the ability to deliver," Rajat Rajgarhia, head, institutional research, Motilal Oswal. "All the banks in the Sensex like SBI, ICICI Bank, HDFC bank, IT stocks such as Infosys and RIL have fallen significantly and have the least downside risk," says Dipen Shah, vice president, private client group of Kotak Securities.
For example, Bharti Airtel has lost 38% in the last one year and is trading at 11 times FY10 estimated earnings. This is below its historic price to earnings multiple band of 14-24 times. But the outlook for the business is robust as the company has highest earnings visibility in the sector and there are new growth drivers such as 3G spectrum and
tower business, said a recent report by Motilal Oswal. On the other hand, BHEL is down by 55% in a year trading at 10 times FY10 estimated earnings but provides strong business visibility with order book to sales ratio of more than 3 times. It is also a leading player catering to the power and industrial machinery. Risk-reward ratio is favourable and any further corrections in the above stocks will be unwarranted, some experts add. Though Indian equity markets have gained more than 10%, the markets may be far from bottoming out. The gains could be an aberration and markets could see some correction beforestabilising. "Market gains this week was just a technical bounce back following several recent positive developments," says Mr Shah. He expects markets to correct and touch the 7,800-8,000 levels in the short term. "There is a high probability of markets seeing further lows of 6500-7000 as US problems are still not over, Dow Jones has still not seen last of its fall and FII (foreign institutional investors) selling in global markets especially in the emerging market like ours has still not ended," adds Amar Ambani, vice-president-equities, India Infoline. However, some feel that stocks are now almost close to the bottom. "If liquidity infusion in the global markets and also in India continues and international markets stabilise (which is likely after few more weeks), our markets could see second round of re-rating," adds Sandeep
Shenoy, strategist, PINC Research. Some of the stocks preferred by the above-mentioned experts:
** HUL: (-17% in six months) (-5% in one year). Diversified and interest rate non-sensitive businesses is the main reason for the interest in the stock.
** ITC (-28% in one month), (-16% in one year). Almost 70% of revenues comes from cigarettes business, where demand is relatively inelastic
** RIL (-55% in one month) (-57% in one year). Exploration and production and retail businesses to be drive growth further; refining margins to sustain over medium term despite pressures in the short term; subdued growth in petrochem business in the medium term--a mild negative though
** Bharti Airtel (-32% in one month), (-38% in one year). Highest earnings visibility in the sector; foray into 3G spectrum to improve revenues and subscriber market share; synergies of tower business to reflect in FY10
** HDFC Bank (-39% in one month) (-42% in one year). Highest CASA (Current and savings accounts) ratio of 44-45% in the industry; track record of consistent growth of 30% in earnings; strong management reputation; superior risk management skills; net non-performing assets
of less than 1.
** ICICI Bank (-52% in one month), (-64% in one year). Largest Indian private bank, significant value from subsidiaries, strong fee income growth
** Infosys Technologies (-25% in one month), (-29% in one year). Strong management, wide product portfolio, most profitable among frontline IT companies.
** L&T (-49% in one month) (-64% in one year). Concerns over slowdown in order inflows are overdone and worst is factored into the price; currently it has good order book; strong execution track record.
Comments