Where To Invest In 2019

With 2017 being a darling year for most investors, everyone expected a smooth 2018 that will further improve the market sentiments for investors. The story was not so good for investors in 2018 as was expected by most of the investors. Now the multi-million-dollar question is: how will be year 2019 and whether investors can create some wealth for themselves in 2019 or will it be another painful year like 2018. Says Ajay Pisute ,“Nothing can be more painful than 2018. The portfolios, including that of mine, and other investors whom I know kept on eroding in value even as the key benchmark index such as Sensex kept on making all-time highs. The best of fund managers could not beat the markets in 2018 and the broader markets simply eroded wealth. I hope, and I think the next year can’t be more or as painful as 2018. Having said that, I really am not sure where (sector) should I park my money as very few options are looking like bargain to me at this juncture.” 


2018: A difficult year for investors
 



Sensex was up by merely 3 percentage points on a YTD basis as on December 12, 2018. Once again, Sensex proved to be a world-beating index (in domestic currency). Whether it will continue to do so in 2019 is the million-dollar question. Out of 30 Sensex stocks, 16 generated negative returns, while 14 stocks managed to deliver positive returns in 2018. TCS was the best Sensex performer and Tata Motors remained the worst Sensex performer.




The performance of global indices in 2018 is in sharp contrast to that of year 2017 when all the indices had managed to close in the green. Our own Sensex was up by 25 per cent in 2017.


Barring BSE Bankex, BSE FMCG and BSE IT, all the other sectoral indices are lower than their levels at the beginning of the year. This again is in sharp contrast to what happened in 2017, when all the sectoral indices managed to close in the green. The year 2018 looks more painful when we look at the performance of the year 2017. There were at least 13 stocks in 2017 that delivered returns in the range of 500 to 1000 per cent, whereas there was not a single stock that managed to deliver such a superlative performance in 2018. There were a whopping 400 stocks in 2017 that delivered returns in the range of 100 to 500 per cent, while there are only 12 stocks that managed to deliver returns in the same range in 2018. We can say that only 30 per cent of the stocks managed to give such superlative performance when compared to 2017. 



The number of stocks that managed to generate returns between 50 to 100 per cent in 2018 are merely 37 when compared with an impressive 420 stocks that managed to deliver returns in the same range. This reflects the pain the broader markets experienced and also by the investors who invested in these stocks even when the key benchmark index Sensex is up by more than 3 per cent.


"Metals, utilities and consumer discretionary sectors saw maximum ROE expansion, while metals, IT and transportation experienced maximum improvement in core operating performance. IT was driven by overall positive demand environment in key segments like BFSI and retail, while metals benefited from improving domestic demand and better capacity utilisation"

How much money India attracts will also depend on how attractive and cheap the other emerging markets remain as compared to India.

Market outlook 2019 The global economy is expected to expand in 2019, however the pace of growth is expected to slow down. In 2018, there was synchronous GDP growth across the globe. Come 2019, the growth may vary across regions and some economies may even witness de-growth. With different economies growing at different paces and few of them de-growing, the volatility may see an uptick in 2019 for the equity markets. For globally active investors, such disparity in growth across regions can create investment opportunities. The probability of the US economy and the emerging economies outperforming the other countries in 2019 is high. One can expect the equity markets in the US and emerging economies to do relatively better in 2019. The year 2019 could well be the year when Japan and China may give more access to the foreigners into their economies. 

For Indian equities, the year 2019 could be the year for wealth creation, as most of the negatives have been already factored in. The recent market reaction post the state election results suggests that the markets have moved on after discounting the poll outcomes quite swiftly as if the results did not matter. The focus will be on the earnings growth, and come FY20, earnings revival is expected to be strong. Several brokerages have pegged the growth of Nifty 50 earnings above 25 per cent for FY20E. The earnings growth in India is expected broadly from all the sectors, and especially from the banking sector.


The fortunes for the emerging markets will depend on what happens to the US dollar. If the US dollar weakens, expect the emerging markets, including India, to rally in 2019. One must remember though that other emerging markets like China, Turkey, Russia and Brazil are trading much cheaper than India at this juncture. Sensex is trading at a P/E of 23-odd and is definitely not among the cheapest of the emerging markets pack. India, however, could be the indirect beneficiary when the smart money withdraws from the US markets and gets parked into the emerging markets basket of which India is a constituent. Worth mentioning here that the emerging nations are cheaper not for no reason. Turkey is going through rough economic  period, investing in Russia is prone to incremental risks of sanctions by the US and China is already involved in an ugly trade war with the US. India thus offers a less risky investment option within the emerging markets space for foreign institutional investors. 

The MSCI Emerging Markets points to cheaper valuations for the emerging market basket when compared to the basket of developed market. The valuation gap between the emerging markets and the developed markets is also near all-time highs. These realities may push emerging markets higher in 2019, however, it will need the US dollar to weaken.

Kenneth Rapoza 
Senior Contributor , Forbes
"Net inflows since November 1 for all emerging market equity funds are $8.34 billion as of December 5, according to EPFR Global, a Cambridge, Massachusetts-based fund tracking firm."

Rajiv Ranjan Singh, 
CEO, Karvy Stock Broking

"Large-caps are likely to do better in the coming quarters"

What is your outlook on equity markets for 2019?
 

We believe that 2019 may be a year of two halves - the equity market is likely to move sideways due to the overhang of the general elections. We believe that the election of a stable, business-friendly government can provide the next trigger to equities. As we enter 2019, there are a number of risks, as well as positive triggers, but on the whole, we believe the positives outweigh the negatives. 

What concerns us are the following
firstly liquidity has tightened and interest rate cycle has reversed, not only in India but worldwide. As a consequence, IMF has downgraded world GDP forecast for 2019 to 3.7% from 3.9% earlier. Lastly, the resignation of the RBI governor was an unfortunate event, however, a quick appointment of a new governor has been helpful in containing the damage. 

On the positive side, while the macro outlook for India has deteriorated somewhat, but it still remains strong, growth for FY2019-20 is expected to be 7.4%. Importantly, we believe the growth will be led by capex. The gross fixed capital formation (GFCF) increased by 12.5% YoY during Q2FY19, the third consecutive quarter of double digit growth. This is important for equity markets as it will boost corporate earnings, which can sustain the next rally in equities. Our target for Nifty for December 2019 is 14,000. 

Where (sectors) should investors invest in 2019? 


Since we expect growth in the coming quarters to be led by capex spending, we favour cyclical sectors- we prefer banks, capital goods. Also, the growth should boost discretionary consumption and we like autos and discretionary consumption stocks. The state-owned banks could be a dark horse in 2019, on account of peak in NPL cycle, recovery of NPL’s via IBC and low valuations. A broad-based economic recovery will be supportive. 

We believe that over the coming quarters, large-caps are likely to do better. Mid-caps and small-caps are likely to underperform until their valuations become attractive. We believe that after mid-2019, with decent time correction, conditions may be favourable for mid-caps and small-caps to perform well. 

Will India outperform global equities? What are the key risks facing equity markets in India? 


We believe that Indian equities should outperform global equity markets in 2019. Growth in India is more resilient, a recovery in corporate earnings will lead Indian equities to do well. Also, removal of the overhang of elections, our research indicates that Indian equities have done well in the six months after the general elections. 

The election of an unstable political coalition at the Centre, weakness in the global economy (especially China), escalation of trade wars, higher oil prices are risks. Domestically, if liquidity issues persist, growth can weaken; a delay in capex recovery is a risk.



Nirmal Jain
Founder and Chairman, IIFL Group



"Global funds are cautious and it is not only the local factors that play on their minds or their decision-making process, even the global factors"

What is your Outlook for the Indian markets?
 

he markets did very well from 2014 when the new government came to power, given their reforms and the improved outlook on the economy. I think it is a short-term corrective phase of one or two quarters. One should not get too perturbed about it. 

But if you are a long-term investor and look at the next three to five years, then I am personally very optimistic and very bullish on the Indian economy and the performance of the stock markets here. 

The corrective phase that we are seeing also has made valuations more reasonable. So, if long-term investors have not allocated enough on equities, they get an opportunity to increase their weightage in equity assets. Regardless of what happens to the global environment and local politics, these things will play out for a few quarters at best. But if you are a long-term investor looking at three-five years or longer, then India is a great market to invest in. 

What are your views on financial space in India? 

We have been passing through an interesting phase. For the sector to do well as a whole, credit and insurance growth has to do well. Within that, PSU banks have been waiting for infusion of capital to revive, resuscitate and get out of the historical legacy of bad assets that they have. This government has tried to do a little bit, but unfortunately few things developed and a lot of work and even the courageous bold step of infusion of more than Rs.2 lakh crore has been negated for the time being at least.

If the government comes back to power, then we expect the PSU banks to revive in a sustainable manner.

NBFCs now account for more than a third of the incremental credit. This is not a small sector and plays a very vital role in the economy’s growth and this sector is here to stay. 

But the latest regulatory crisis have been a wake-up call. People who have been trying to work on the edge in terms of liquidity or in terms of managing their cost of funds, have got a wake-up call and hopefully the balance will return. When the stock blows over and the dust settles, we will see that the men are separated from boys and the good players will become stronger and play a meaningful role. Private sector banks have been doing well by and large. I do not think there is any challenge there. .. 

Please share your views on NBFC sector in specific. 

NBFCs have filled the void created by PSU banks crippled for capital. They bring new borrowers in the ambit of formal finance by developing unique underwriting standards and inculcating financial discipline. Although NBFCs do not have access to RBI as a lender of last resort or for liquidity, they are much lesser leveraged than banks. Banks require lesser capital adequacy and have lesser risk weightage for most assets. NBFCs had debt/equity ratio of 5.4X as at end March 2018 and banks have twice that much. In the last 20 years, many banks had to be rescued by forced merger into larger banks, whereas no large NBFC has faced solvency risk. NBFCs have demonstrated superior asset quality with gross NPL ratio of 4.3% as at end March 2018. 

As NBFCs grow in their size, capitalisation and reach faster than most other sectors, they deserve larger share of bank credit as well. For the economy, credit delivery through NBFCs is superior for two levels of capital cushion, lower cost of last mile delivery and specialised underwriting and collection skills. 

Regardless of recent panic and meltdown in NBFCs market values, they are here to stay and play an important role in the economic growth and financial inclusion. In fact, as the economy becomes larger and grows faster, need for credit will rise more than proportionately. We need both banks and NBFCs to rise to the occasion and provide the economy with its lifeblood, i.e., credit. 

How are global funds looking at India at this juncture? 

Global funds are cautious and it is not only the local factors that play on their minds or their decision-making process, even the global factors. When the US Fed is hiking interest rates, obviously there is a tendency for the funds to move back to the US which is a relatively safer haven. So, global investors have to take cognisance of factors like China, US, what is happening in other countries and also what is happening locally here in India. 

Most of the global investors are watching the developments carefully but most large high quality investors are serious about India and are looking for opportunity in terms of valuations, stability and environment.

Kamlesh Rao 
Managing Director & CEO - Kotak Securities



"Bulls can push Nifty to 13,000 by Dec' 19"

What is your advise for investors at this juncture and what may impact stock prices in 2019? 

The first-half is going to be volatile. The risk-reward will be in favour of investors, though in 2019. The valuation gap between mid/small-caps and large-caps has narrowed substantially after the recent correction. In spite of the correction, we do not see mid-caps and small-caps bottoming out yet. 

Globally, the trade war, Fed rate action and outcome of Brexit will be crucial for the markets. Locally, the next six months will be challenging and volatile (due to the forthcoming general elections). However, these six months will also provide investment opportunity for investors. Good prices and good news will not come together. In the case of bear market, expect the Nifty to average between 10,000-10,500. In the bull case, expect the Nifty to average between 12,500-13,000 by the end of Dec ’19. 

Investors should focus on good quality management driven companies having high earnings growth and reasonable valuations. The scope of re-rating is less in 2019. The stocks returns may mimic earnings growth. Hence, it is ideal to focus on growth stocks. Equity valuations could be a function of bond yields. If yields go lower, then equity markets will have room to get re-rated. 

What is your Nifty earnings outlook for 2019 and which sectors should investors focus on in 2019?
 

We expect Nifty earnings to show a double digit growth in FY19 (~14-15%). Kotak Institutional Equity (KIE) is building in 29% earnings growth for Nifty in FY20E. The earnings growth will be mainly led by banking. Please note here that the previous five years' earnings CGAR for Nifty has been ~4%. 

As far as sectors go, we have positive outlook on automobiles, auto ancilliaries, corporate banks, buidling materials, construction, metals and mining and information technology. 

Lower crude oil price is expected to help the auto sector. In general, the stock prices are looking attractive for auto stocks after the current slowdown in volumes. We expect the raw material price situation to improve in FY20. We also find auto ancillaries and tyre stocks appealing at this juncture. Healthy replacement demand and recovery in volume growth is expected in FY20. Again, the exports and currency may aid growth in FY20. 

We see some steady recovery in corporate banks. There is a good possibility of sharp surge in earnings of corporate banks due to a steep decline in loan-loss provisions. The NPL cycles have clearly peaked and NCLT resolutions happening is a great news for the corporate banks. 

Did you see more participation from retail investors this year?
 

The retail trading volumes grew by 22 per cent this year. Demat accounts have reached 3.4 crores across 2 depositories with some clients having multiple accounts. The penetration of demat accounts vis-a-vis India’s population is ~2.23%. As per our estimate, the penetration of demat account in China is 10%. We still have a long way to go. 

Among the accounts opened, the active trading accounts are around 24% and derivatives penetration is just 1/10th of that. We are seeing more and more investors and traders using online platforms to buy and sell equity. The growth in mobile trading is impressive compared with offline trading. 

This year, we saw options volumes constitute 87 per cent of the total market volumes even as the index options contributed to more than 94 per cent of the options volumes.



Milan Vaishnav

Consulting Technical Analyst, Gemstone Equity Research & Advisory Services

"Investing in more than one markets helps investors to benefit from global growth"

Is it high time Indian investors explore international equity investing opportunities?

Yes, certainly! It is high time that Indian investors should consider international investing. Financial markets are now inter-connected and any event of any nature has its global impact. Also, having access to and investing in the international equities comes with its benefits.

Investing in the international equities ensures diversification. Well-diversified portfolios often provide harder hedge against any downside market risks. Spreading your risk across nations is one of the major benefits of investing internationally.

What are the key risks of international equity investing?


Besides all the benefits that one can have from investing abroad, the investment in international equities often comes with its own set of risks. First comes the political risk.

Among other risks associated with Milan Vaishnav investing in international equities is the general market risk that can come from a general slowdown, regional trade wars, volatile currency movements. One may also face liquidity risk while investing in emerging markets.

Investor has to remember that though investing in the international equities is certainly a great way to diversify the portfolio and get potentially higher returns, it also comes with the set of risk elements discussed above.

What is the outlook for global equities and whether India will underperform in the coming year?

The outlook on the global equities remains stable. We may not see major downsides anywhere globally, but the markets may remain in a prolonged wide-ranged consolidation type of moves. The US markets still continue to remain well within the decade-old upward rising channel. This 10-year bull trend is intact as of now, though it has showed some signs of a slowdown, which may lead to some intermediate corrective moves.

Coming to emerging markets in general, and India in particular, Indian market may take some time before it breaches the life-time high, which it formed near 11760. If we examine the long term monthly charts of Nifty, the second phase of the rise that took the markets to 11760 came with a big negative divergence on the lead indicators. We may not see any major downsides in the Indian markets, but a secondary or intermediate trend arising out of range-bound corrective moves cannot be ruled out.

With regard to relative performance of Indian markets against global equities, I feel that emerging markets in general, and India in particular, is set to relatively outperform the global equities.

There are a couple of factors that work in favour of the emerging markets relatively outperforming. The US is witnessing some slowdown and the short term yield curve became inverted. Though this may not bring recession overnight, but Fed is seen certainly likely to stop raising rates. This will also keep the strength of the US dollar in check. With crude prices coming off rapidly, all these factors are likely to work out in favour of emerging markets in general, and India in particular.


DSIJ Portfolio Performance

'Where to invest' portfolio has a track record of beating the benchmark index on a consistent basis. The recent 'where to invest in 2018' portfolio has underperformed the benchmark mainly due to its bias towards mid-caps and small-caps. The DSIJ portfolio in 2014, 2015 and 2016 managed to beat the benchmark by a good margin, while the DSIJ portfolio matched the Sensex performance in 2017. If we consider the average returns generated by the DSIJ portfolio over the five years, the average returns of the portfolio is nearly 21 per cent per year, which is almost double that of the average returns of Sensex in the past five years. We accept that the performance in 2018 portfolio has been disappointing, however we are confident that the year 2019 is going to be a different narrative altogether.


Some of the stocks such as Avanti Feeds Ltd and Force Motors pulled down the portfolio by sliding more than 50 per cent in 2018. The low performance in 2018 makes us resolve to be more laser focussed in identifying investment opportunities for year 2019.

Conclusion
The year 2018 is already threatening to be one of the worst years in terms of FPIs' net outflows from the Indian markets. The so-called ‘hot money’ has not dented the market mood severely mainly due to the support from the domestic inflows. The way markets are placed currently, it looks as if the markets are waiting to see some concrete signs of economic recovery across the globe. The problem with the Indian market is that it has been outperforming its global peers over 3-year and 5-year periods. When that happens for so long, it pushes the valuations higher. Indian markets are richly valued right now and valuations remain the key concern for both global and domestic institutional investors. Definitely the FPIs and domestic investors would like to wait for the uncertainty of elections to get over in India before they make up their mind on any sizeable investment. Till then, one can expect global investors to adopt a cautious approach even though several global analysts believe elections results may not be a major event that will change the market fortunes over the long term.

For 2019, the dynamics are placed in such a way that the strength of the US dollar, which depends on what action the US Federal Reserve takes, and the levels of the crude oil prices are going to be the biggest influencers for stock market returns in India and other emerging countries. 

With global factors seemingly so important for the markets in the coming year, DSIJ feels the investors should take solace from the expected growth in the earnings for Nifty 50 and Sensex 30 stocks. Also, with the odds being in favour of broader markets outperforming the key benchmark indices, 2019 could be the year for quality mid-caps and small-caps too.

City Union Bank

BSE CODE : 532210
Face Value: Rs.1
CMP: Rs.178.50
Market Cap F F (Cr.)13,100.79

Here is why
Diversified asset profile
Higher yielding loan portfolio
Track record of profitability and
dividend payout

City Union Bank (CUB) operates in the segments of treasury, corporate and wholesale banking, retail banking and more. It offers CUB mobile wallet – a mobile-based software application and caters to customer utility services.

On the quarterly front, its revenue stood at Rs.92.649 crore in Q2FY19 as compared to Rs.84.088 crore in Q2FY18, posting a growth of 10.18 per cent. PBDT fell to 29.595 crore in Q2FY19 from Rs.32.006 crore in Q2FY18, thereby plummeting 7.53 per cent. Net profit increased to Rs.16.799 crore in Q2FY19 from Rs.14.476 crore in Q2FY18, registering a growth of 16.04 per cent. Net profit margin improved to 18.13 per cent in Q2FY19 from 17.21 per cent in Q2FY18.




The bank's net worth climbed to Rs.4,149 crore in FY18 from Rs.3,556 crore in FY17, posting a growth of 16.67 per cent. Total CASA surged to Rs.7,957 crore in FY18 from Rs.7,039 crore in FY17, thereby rising 13.04 per cent. Deposits rose to Rs.32,853 crore in FY18 from Rs.30,116 crore in FY17, thereby rising 9.08 per cent. Gross advances increased to Rs.28,239 crore in FY18 as compared to Rs.24,112 crore in FY17, marking a growth of 17.11 per cent. Net interest income (NII) escalated to Rs.1,430 crore in FY18 versus Rs.1,199 crore in FY17, thereby rising 19.26 per cent. The improvement in NII can be attributed to loan growth of 17 per cent as well as the scaling up of Net Interest Margin (NIM) to 4.42 per cent in FY18 from 4.17 per cent in FY17. Net profit climbed to Rs.592 crore in FY18 in comparison to Rs.503 crore in FY17, registering an increase of 17.69 per cent. Consequently, operating profit surged to Rs.1,207.75 crore in FY18 from Rs.993.74 crore in FY17, registering a growth of 21.53 per cent. Basic EPS rose to Rs.9.18 in FY18 from Rs.8.39 in FY17, thereby posting a growth of 9.41 per cent. Return on assets improved to 1.60 per cent in FY18 from 1.50 per cent in FY17. Return on equity stood at 15.37 per cent in FY18 as compared to 15.26 per cent in FY17. The book value per share increased to Rs.62.63 in FY18 from Rs.59.40 in FY17, registering a growth of 5.43 per cent.

CUB also faced several challenges – operating expenses increased by 9.53 per cent to Rs.754.65 crore in FY18 from Rs.688.97 crore in FY17. Moreover, establishment expenses rose 5.95 per cent to Rs.315.88 crore in FY18 from Rs.298.14 crore in FY17. During FY17-18, the bank opened 50 new branches and installed 135 new ATMs, which drove up the infrastructure and staffing expenses. The cost to income ratio stood at 38.46 per cent in FY18 as against 40.94 per cent in FY17.

CUB has a strong track record of continuous profitability and dividend payout in its over 110 years of operations. Its business has grown at a CAGR of 20 per cent in the last 10 years. It has a strong capital adequacy ratio of 15.11 per cent. By virtue of these factors, we recommend our reader-investors to BUY this stock.

Dabur

BSE CODE : 500096
Face Value: Rs.1
CMP: Rs.442.5
Market Cap F F (Cr.)25,225.08


Here is why
Strong financial profile
Robust brand portfolio
Promising future outlook

Dabur India Ltd. (DIL) is a packaged consumer products manufacturer which offers a plethora of products centred on traditional Ayurveda and nature. It operates in the verticals of healthcare, home & personal care, and foods. Its portfolio of 16 brands includes Dabur Chyawanprash, Dabur Amla, Vatika and Hajmola. Its products are offered across 6.3 million retail outlets across India.



On the consolidated quarterly front, net sales climbed to Rs.2,124.97 crore in Q2FY19 from Rs.1,958.93 crore in Q2FY18, posting a growth of 8.47 per cent. EBITDA reached Rs.450.83 crore in Q2FY19 versus Rs.419.90 crore in Q2FY18, thereby rising 7.36 per cent. PAT rose to Rs.377.28 crore in Q2FY19 from Rs.362.87 crore in Q2FY18, registering an increase of 3.97 per cent. Adjusted EPS soared to Rs.2.13 in Q2FY19 from Rs.2.05 in Q2FY18.

The revenue from operations reached Rs.7,748 crore in FY18 versus Rs.7,701 crore in FY17, posting a growth of 0.61 per cent. EBITDA climbed to Rs.1,922.6 crore in FY18 from Rs.1,807.3 crore in FY17, registering an increase of 6.37 per cent. Operating profit surged to Rs.1,617 crore in FY18 from Rs.1,509 crore in FY17, thereby climbing 7.15 per cent. PAT stood at Rs.1,354 crore in FY18 as against Rs.1,277 crore in FY17, registering an increase of 6.02 per cent. EPS rose to Rs.7.7 in FY18 from Rs.7.2 in FY17 while DPS rose to Rs.7.5 in FY18 from Rs.2.3 in FY17. BVPS reached Rs.32.4 in FY18 versus Rs.27.5 in FY17. During FY17-18, the company paid special dividend of Rs.5 per share in addition to its annual dividend of Rs.2.50 per share. Return on invested capital (ROIC) stood at 45.8 per cent in FY18 versus 47.1 per cent in FY17. ROE fell to 23.7 per cent in FY18 26.3 per cent in FY17. Net cash increased to Rs.3,176 crore in FY18 from Rs.2,569 crore in FY17. Its debt got reduced to Rs.936 crore in FY18 from Rs.976 crore in FY17.

n FY17-18, DIL’s area under cultivation of rare medicinal herbs grew 25 per cent to over 5,000 acres. During the year, the company entered into an agreement to acquire 100 per cent stake in D&A Cosmetics Proprietary and Atlanta Body & Health Products Proprietary to bolster its hair care segment in Africa. DIL launched innovative products like Pudin Hara Antacid, Dabur Honitus Hot Sip and Vasant Meha Ras to name a few.

The competition in the FMCG sector has intensified not only in terms of new entrants but also higher discounting by prominent players. The demand growth for packaged consumer products remained subdued despite favourable monsoon. The geopolitical turbulences impacted the sales of the company. Despite facing these headwinds, DIL fared well by altering its marketing mix by reducing consumer promotions while arranging customer engagement programmes in both rural and urban markets. By virtue of these factors, we recommend our reader-investors to BUY this stock.

HDFC Bank

BSE CODE : 500180
Face Value: Rs.2
CMP: Rs.2093.75
Market Cap F F (Cr.) 4,28,579.38 

Here is why
Robust Financials
Strong loan growth
Business growth gaining momentum

HDFC Bank Ltd offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments: wholesale banking services - the bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small and mid-sized corporates and agri-based businesses, retail banking services - the objective of the retail bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements, and treasury - within this business, the bank has three main product areas - foreign exchange and derivatives, local currency money market and debt securities, and equities. The treasury business is responsible for managing the returns and market risk on this investment portfolio. The services offered by the bank include personal banking under which accounts and deposits, loans, cards, forex, investments and insurance are included.



HDFC Bank has been consistently gaining market share across retail product segments (personal loans, business banking, credit cards and auto loans), and the recent capital raise will enable it to sustain this growth momentum. The company has been witnessing a robust loan growth which was led by retail loans, which grew 5.5% QoQ, driven by credit cards, personal loans and two-wheelers.

On the financial front on a standalone basis, the interest earned by the company has surged by 23.03 per cent on a YoY basis to Rs.24199.56 in Q2FY19 while in Q2FY18 it was Rs.19670.28 crore. Even in terms of total income, it has witnessed a 22 per cent hike to reach to Rs.28,215.15 crore in the September quarter end of FY19 versus Rs.23276.16 crore in the corresponding quarter of the previous fiscal. The profit after tax (PAT) has risen by 20 per cent in Q2FY19, which came in at Rs.5005.73 crore as against Rs.4151.03 crore in the same quarter of the previous year.

On the annual front, the interest earned in FY18 stood at Rs.80241.36 crore, posting a 16 per cent surge from Rs.69305.96 crore in FY17. The total income collected in FY18 also went up 17 per cent to Rs.95461.66 crore versus Rs.81602.46 crore in the previous fiscal. The profit after tax came in at Rs.17486.73, increasing by 20 per cent from Rs.14549.64 crore in FY17.

On the valuation front, the company is currently trading at a PE multiple of 29.98x against an industry PE of 34.30x. The return on equity (RoE) stood at 17.87 per cent and the return on capital employed (RoCE) stood at 17.34 per cent. We recommend a BUY on HDFC Bank taking into consideration the growth trajectory in the financials and the robust loan growth.

Jubilant Lifesciences

BSE CODE : 530019
Face Value: Rs.1
CMP: Rs.738.30
Market Cap F F (Cr.) 5,409.47


Here is why
Excellent growth prospects
Healthy demand and pricing
Diversified product portfolio

Jubilant Life Sciences (JLS) is a pharmaceutical and life sciences company. Additionally, it also provides services in contract manufacturing of sterile injectables and drug discovery solutions. The company is engaged in providing basic organic chemicals.




On the consolidated quarterly front, net sales stood at Rs.2,245.57 crore in Q2FY19 as against Rs.1,621.38 crore in Q2FY18, thereby posting a growth of 38.50 per cent. EBITDA stood at Rs.450.18 crore in Q2FY19 in comparison to Rs.306.06 crore in Q2FY18, marking an increase of 47.09 per cent. Net profit climbed to Rs.209.77 crore in Q2FY19 as compared to Rs.125.47 crore in Q2FY18, thereby surging 67.19 per cent. EPS increased to Rs.13.51 in Q2FY19 from Rs.8.24 in Q2FY18. The strong performance in Q2FY19 was driven by growth in specialty pharmaceuticals and smart recovery in the generics and API businesses. The appreciation of the US dollar contributed to the revenue growth. The growth in the LSI business did not meet expectations as Vitamin B3 business has not yet returned to normalcy.

On the consolidated annual front, its revenue from operations increased to Rs.7,557.808 crore in FY18 from Rs.6,006.324 crore in FY17, thereby rising 25.83 per cent. EBITDA increased to Rs.1,518.381 crore in FY18 as against Rs.1,345.291 crore in FY17, posting a growth of 12.86 per cent. Profit climbed to Rs.859.082 crore in FY18 from Rs.737.642 crore in FY17, thereby surging 16.46 per cent. EPS escalated to Rs.41.25 in FY18 from Rs.36.93 in FY17. Net cash generated from operating activities increased to Rs.1,303.200 crore in FY18 from Rs.1,268.487 crore in FY17. The board has proposed a dividend of 300 per cent per equity share of face value Re 1 for FY17-18, which will amount to a cash outflow of Rs.576 million inclusive of tax.

The company enjoys a leading market position across business lines with stiff barriers to entry for specialty pharmaceuticals. It enjoys a de-risked business model owing to its diverse product offerings. JLS is working on strengthening its balance sheet by reducing debt and improving financial ratios. JLS’s nutritional business is on the road to recovery. The higher raw material costs due to USD appreciation are being transferred to customers. The company has planned capital expenditure of Rs.5,500 million in FY19. Additionally, it intends to invest Rs.3,000 million in R&D of which Rs.1,500 million will be allocated to product development. During FY17-18, the company acquired the radiopharmacy business of Triad Isotopes in the US. The acquisition will add substantial scale to the company’s niche pharmaceuticals business in the specialty pharmaceuticals vertical. This is likely to bring JLS at the forefront as a nuclear medicine player. The growth in the upcoming quarters is expected to come from new products and execution of existing contracts. By virtue of these factors, we recommend our reader investors to BUY this stock.

NOCIL

BSE CODE : 500730
Face Value: Rs.10
CMP: Rs.166.25
Market Cap F F (Cr.) 1,731.96


Here is why
Profitability doubled in 3 years
Volume growth - robust demand
Value growth - better product mix

NOCIL is India’s largest rubber chemicals manufacturer with state-of-the-art technologies and a strong marketing & distribution service network.

On the quarterly front, the company's revenue from operations climbed to Rs.271.99 crore in Q2FY19 from Rs.268.09 crore in Q1FY19, thereby rising 1.45 per cent. EBITDA dropped to Rs.78.91 crore in Q2FY19 from Rs.80.23 in Q1FY19, posting a drop of 1.64 per cent. PAT increased to Rs.52.84 crore in Q2FY19 as compared to Rs.50.80 crore in Q1FY19, thereby posting a growth of 4.01 per cent. Basic EPS increased to Rs.3.20 in Q2FY19 from Rs.3.08 in Q1FY19, thereby rising 3.89 per cent. A glance at the quarterly financials on a YoY basis shows that revenue from operations increased to Rs.271.99 crore in Q2FY19 from Rs.227.60 crore in Q2FY18, thereby growing 19.50 per cent. EBITDA climbed to Rs.78.91 crore in Q2FY19 from Rs.54.02 crore in Q2FY18, posting a growth of 46.07 per cent. PAT surged to Rs.52.84 crore in Q2FY19 from Rs.38.07 crore in Q2FY18, thereby rising 38.79 per cent. Basic EPS climbed to Rs.3.20 in Q2FY19 from Rs.2.32 in Q2FY18, thereby rising 37.93 per cent.




On the annual front, total income increased to Rs.1,003.60 crore in FY18 from Rs. 827.40 crore in FY17, registering an increase of 21.29 per cent. EBITDA climbed to Rs.277.20 crore in FY18 from Rs.167.09 crore in FY17, posting a growth of 65.89 per cent. Consequently, PAT surged to Rs.168.61 crore in FY18 from 96.83 crore in FY17, thereby rising 74.12 per cent. Moreover, EPS rose to Rs.10.27 in FY18 from Rs.5.98 in FY17, marking a growth of 71.73 per cent. Dividend per share increased to Rs.2.50 in FY18 from Rs.52.84 crore in Q2FY19 as compared to Rs.50.80 crore in Q1FY19, thereby posting a growth of 4.01 per cent. Basic EPS increased to Rs.3.20 in Q2FY19 from Rs.3.08 in Q1FY19, thereby rising 3.89 per cent. A glance at the quarterly financials on a YoY basis shows that revenue from operations increased to Rs.271.99 crore in Q2FY19 from Rs.227.60 crore in Q2FY18, thereby growing 19.50 per cent. EBITDA climbed to Rs.78.91 crore in Q2FY19 from Rs.54.02 crore in Q2FY18, posting a growth of 46.07 per cent. PAT surged to Rs.52.84 crore in Q2FY19 from Rs.38.07 crore in Q2FY18, thereby rising 38.79 per cent. Basic EPS climbed to Rs.3.20 in Q2FY19 from Rs.2.32 in Q2FY18, thereby rising 37.93 per cent. On the annual front, total income increased to Rs.1,003.60 crore in FY18 from Rs. 827.40 crore in FY17, registering an increase of 21.29 per cent. EBITDA climbed to Rs.277.20 crore in FY18 from Rs.167.09 crore in FY17, posting a growth of 65.89 per cent. Consequently, PAT surged to Rs.168.61 crore in FY18 from 96.83 crore in FY17, thereby rising 74.12 per cent. Moreover, EPS rose to Rs.10.27 in FY18 from Rs.5.98 in FY17, marking a growth of 71.73 per cent. Dividend per share increased to Rs.2.50 in FY18 from 1.80 in FY17, posting a growth of 38.88 per cent. Return on net worth stood at 16 per cent in FY18 versus 11 per cent in FY17. Return on capital employed stood at 24 per cent in FY18 as against 17 per cent in FY17. FY17-18 marked the second consecutive year in which the company achieved growth in sales volume of 12.5 per cent.

During the period, NOCIL’s exports demonstrated a growth of 8 per cent in volume and 17 per cent in revenue. Export turnover stood at 255 crore in FY18 versus 218 crore in FY17. The board has approved capacity expansion of 255 crore at the plants located in Navi Mumbai and Dahej. The same will be commissioned during the first half of FY2019-2020. The industry as a whole is being subjected to compliance audits and strict pollution control measures imposed by China. This resulted in temporary global shortage and price escalation. NOCIL leveraged on this opportunity by participating actively in certain key customer accounts. Although the company faced some headwinds in the form of increased input prices of raw materials like crude oil and benzene, its superior inventory management helped it pull through. NOCIL has a wide product range and committed plans for future growth. By virtue of these factors, we recommend our reader-investors to BUY this stock.

TATA CONSULTANCY SERVICES

BSE CODE : 532540
Face Value: Rs.1
CMP: Rs.1989.25
Market Cap F F (Cr.) 1,94,465.46


Here is why

Attractive valuations
Increasing customer demand
for the services
Financial growth trajectory

Tata Consultancy Services Limited is engaged in providing information technology services, digital and also business solutions. The company's profile extends from banking, finance and insurance services to manufacturing, retail and consumer packaged goods. The company also offers telecom, media and entertainment, and others, such as energy, resources and utilities, hi-tech, life science and healthcare, s-governance, travel, transportation and hospitality, and other products. Its services portfolio consists of IT and assurance services, business intelligence and performance management, business process services, cloud services, connected marketing solutions, consulting, engineering and industrial services, enterprise solutions, IT infrastructure services, mobility products and services and platform solutions. It also serves industries, including insurance, healthcare, retail, telecom and others.




On the financial front on a consolidated basis , the net sales for the latest quarter ending September, FY19 stood at Rs.36,854, jumped by 20 per cent on a YoY basis from Rs.30,541 crore. The profit before interest depreciation and tax (PBIDT) of the company increased by 26 per cent in Q2FY19 to reach Rs.10,278 crore versus Rs.8164 crore in the same quarter of the previous year. The profit after tax (PAT) has expanded by 22.17 crore and came in at Rs.7927 crore in Q2FY19 from Rs.6460 crore in Q2FY18.

The company has reported an all-round strong performance in Q2, with revenue growth of 20.7 per cent YoY. The operating margin for the quarter was 26.5 per cent compared to 25.1 per cent during the same period last year. The net margin for the quarter was 21.4 per cent. The strong performance for the quarter can be ascribed to the company’s participation in the fast expanding digital opportunity.

On the annual front, the company’s net sales have gone up 4 per cent in FY18 to Rs.123104 crore as against Rs.117966 crore in FY17. The company posted PBIDT of Rs.36158 crore in FY18 while in FY17 it was Rs.36,532 crore, posting a marginal drop of 1 per cent. The PAT has however remained stable at Rs.25,880 crore in FY18 versus Rs.26,357 crore in FY17.

On the valuation front, TCS is currently trading at a P/E of 26.03x on its TTM earnings as against industry P/E of 20.24x. The company’s return on equity (ROE) stands at 30.29 per cent as against ROEs of its peers Wipro and Infosys of 5.97 per cent and 24.09 per cent, respectively. The return on capital employed (ROCE) for TCS stands at 39.84 per cent while Wipro’s ROCE was at 16.87 per cent and Infosys’ was at 30.38 per cent.

The growth of the company has been very well-balanced across North America, Europe, and the rest of the world. It is well-balanced between banking and insurance. The growth is being derived from strong demand in areas like cloud migration, micro services, cyber security, and intelligent automation. Looking at the present position of TCS, we recommend a BUY. Quarter On Quarter (Standalone) (Rs. in Crore)


WPIL

BSE CODE : 505872
Face Value: Rs.10
CMP: Rs.854.55
Market Cap F F (Cr.) 
301.60

Here is why

Healthy financials
Attractive valuations
Strong order book

WPIL Ltd is mainly engaged in the manufacture of vertical pumps, horizontal pumps, grey iron, castings and sluice valves. WPIL now offers system engineering and complete solutions to all kinds of water and waste water handling and transportation needs. The product range of the company includes vertical turbine pumps, vertical mixed flow and axial flow pumps, submersible pumps, horizontal centrifugal pumps, etc.




On the financial front, on a standalone basis, the net sales of the company came in at Rs.117.86 crore in Q2FY19, substantially up by 94.31 per cent from Rs.60.66 crore. The profit before interest depreciation and tax (PBIDT) of the company in the second quarter of FY19 was posted at Rs.20.99 crore, witnessing over 700 per cent jump from a meagre Rs.2.5 crore collected in the same quarter of the previous fiscal. The profit after tax (PAT) stood at Rs.20.64 crore at the September end quarter, FY19, expanding by over 600 per cent from Rs.2.72 per cent.


On the annual front, the net sales have expanded by 51 per cent in FY18 at Rs.422.05 crore while in the previous fiscal it was Rs.279.80 crore. The PBIDT exceeded 80 per cent to reach Rs.84.77 crore in FY18 as against Rs.45.55 crore in FY17. The PAT more than doubled in a year as in FY18 it came in at Rs.47.56 crore as against Rs.20.28 crore in FY17. On the valuation front, the company is currently trading at a P/E of 9.90x on its TTM earnings. Its Price/BV stands at 2.47x. The company’s dividend yield stood at 0.47 per cent. Amongst its peers, the return on equity (ROE) for WPIL stood at 17.23 per cent and Shakti Pump’s ROE was at 11.42 per cent. In terms of return on capital employed (ROCE), WPIL stood at 23.66 per cent and Shakti pumps stood at 17.22 per cent.

The company is expected to deliver a good quarter. With a strong order book, increased availability of infrastructural resources and access to global markets, the company is well-placed to strengthen its place in the market by providing greater value to its customers and other stakeholders. The promoter stake has increased and the company has a decent consistent profit growth of 20.23 per cent over 5 years.

The company has expanded its operations globally and now has manufacturing operations in United Kingdom , Italy, France, Switzerland, South Africa, Zambia, Australia and Thailand through its group companies. The company is focusing on constant investment in manufacturing and R&D, supported by 12 manufacturing locations covering the entire process of pump manufacture from casting, fabrication, machining, assembly and testing, which have allowed it to deliver great value to its client by enhancing efficiencies at every step. The company is looking forward to continue its expansion into newer markets and is focused on becoming a strong player in the sector. Taking into consideration the company’s status, we recommend a BUY looking at the positives of the company.

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