Markets To Inch Higher – Time To Go Shopping!

When it comes to the equity markets there is never a dull moment – constant highs and lows keep investors in a state of perpetual movement. And that is the case even now when the current market condition has put many investors in a dilemma. The more than decent recovery in the markets has kept investors guessing about the future movement of their stocks. Geyatee Deshpande discusses how the markets have behaved in 2020 while Yogesh Supekar highlights the investing opportunities in the current markets even as the DSIJ research team shares its ‘top picks’ for the next one year 

Its festive time, especially Diwali, and a good time to sit back, take a deep breath and indulge in a review of events affecting your portfolio. The current festival period is definitely sweeter than the previous one as the broader markets have performed much better than the previous year. The year 2020 can be termed as a ‘black swan’ year with the pandemic hitting us from the blue. Fortunately, the graph of the number of cases shows that recovery has been more than impressive in the past few days. 

In response, the markets have turned positive, sending out a signal of hope to investors. However, the rally in 2020 has been restricted to high-growth stocks. And if we take into account the mother of all markets i.e. those of the US, it was the FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks that dominated the market moves. Amazon delivered more than 64 per cent returns while Netflix was up by more than 47 per cent on YTD basis with Facebook and Alphabet (Google) inching up by 28 per cent and 21 per cent, respectively, on YTD basis. 

One may argue that there are several stocks which have inched up more than these FAANG stocks. A point to note here is that the FAANG stocks plus Microsoft comprise approximately 25 per cent of the market capitalisation of the S & P 500 and accounted for almost all the market gains on YTD basis for S & P 500. Without the contribution of these FAANG stocks the S & P 500 would be trading in the negative zone. It is because of this huge influence exerted by the FAANG stocks that they were the talk of the town in 2020.

Going ahead one can expect cooling off in these technology-related stocks. That may set the tone for broader market participation, at least in the US markets. Meanwhile, IT stocks in Indian markets may mimic the performance of technology stocks in the US and hence it is has become imperative to track US’ equities with focus on large IT stocks. The year 2020 saw pharmaceutical and IT stocks dominating the markets as indicated in the table below. 

Market Performance in 2020

In spite of the pandemic and the lockdown situation in India which threatened to put a long-term halt to certain economic activities, there were as many as 144 stocks that more than doubled while there were at least 329 stocks that generated more than 50 per cent returns. A healthy number, considering it was a pandemic year. NASDAQ is up by 26 per cent while the Asian markets have relatively outperformed with the Sensex faring better than most of the global indices. China’s market performed the best in Asia followed by the South Korean markets.

If we consider the Nifty 50 stocks there are some clear laggards in 2020. While Nifty is down by close to 4 per cent in 2020 so far, such stocks as IndusInd Bank, ONGC, Coal India, State Bank of India, Bajaj Finserv, IOC, GAIL, Axis Bank, ITC, BPCL, Larsen and Toubro, Tata Motors, ICICI Bank, UPL, Hindalco and SBI Life Insurance are down anywhere between 20 per cent to 57 per cent. Up to 28 Nifty stocks out of 51 Nifty constituents have generated negative returns i.e. almost 56 per cent of the Nifty constituents have delivered negative returns on YTD basis.

However, in the past three months, only 20 Nifty constituents have generated negative returns, showing steady recovery in the markets. Also, the laggards on YTD basis such as Tata Motors, ICICI Bank, Axis Bank, etc. are currently the top gainers if we consider the recent three months’ period. Mahindra and Mahindra, JSW Steel, Reliance Industries and IndusInd Bank are some of the stocks in the Nifty basket that have more than doubled since the markets made their lows in March. Coal India and IOC are the only Nifty constituents that have slipped lower from their March lows. 

Opportunities in Current Markets

If one looks at the market holistically, only four to five sectors are doing well in terms of profitability while the rest of the sectors are still struggling. IT, pharmaceuticals, private banks, FMCG companies, specialty chemicals and automotive companies are showing good trends in profitability. Investors can focus on these sectors. Meanwhile, investors should stay away from sectors showing huge amount of stress in corporate profitability, as for example, telecom, PSU banks and capital goods.

There may be select players within these sectors doing well but the above mentioned sectors overall are bleeding and hence can be avoided by investors. IT and pharmaceuticals still look attractive in terms of profitability. IT contributes to almost 25 per cent of the total corporate profitability. The pharmaceutical sector is attractive as it has both domestic and global markets to cater to, which are in a phase of growth. In fact, there is a definite growth trajectory visible for pharmaceutical stocks. It is possible that both the sectors may produce future multibaggers along with the consumer-related sector.

IT and pharmaceutical have underperformed since October but accumulation in these two sectors is warranted along with financials and private banks’ stocks. There is some serious re-rating possibility in financials with several housing finance companies and finance companies beating the market estimates in the latest season. HDFC, Sriram Transport and IIFL Finance are just a few examples whose latest quarterly results were much better than expected. Financial stocks are one of the biggest beneficiaries of the economic recovery in India.

Huge opportunity lies in select financial stocks and private banks’ stocks. Technically too, the banking stocks have started to look attractive. “Bank Nifty has surged but at a gradual pace in an upward sloping channel with recovery in between 50 per cent and 61.8 per cent retracement levels of the fall. It has also formed a cup and handle pattern on the daily timeframe and is standing at the breakout level. Hence, we can say there is still some room left for Bank Nifty to surge in the near term where we see 27,500 in the first place above the 25,670 mark. Similar is the formation of Nifty Financial Service index where we hold 12,660 and 12,780 as the next resistances,” opines Bhagyashree Sawant, Senior Technical Analyst, Mangal Keshav Financial Services.

Review of Our Previous Diwali Portfolio

The Diwali portfolio recommended last year was able to generate more than 27 per cent if we consider annualised returns i.e. if the profits booked were reinvested at the similar rate of returns for the rest of the year. In case for any reason investors were not able to book profits in time i.e. at the time of exit recommendations and were still holding the stocks in the portfolio, the returns generated in the portfolio would have been 10.24 per cent. Alembic Pharmaceuticals, PolyCab India and Biocon were the top performing stocks in the portfolio while Jiyo Eco Products Ltd. dragged the portfolio performance. The said portfolio managed to beat the markets even as the Sensex and BSE 500 remained more or less flat with negligible gains. 

Market Outlook 

Mohit Ralhan
Managing Partner and CIO, TIW Private Equity 

The ongoing pandemic is a huge challenge for India given its large population and inadequate healthcare infrastructure. Still, India has been able to contain the spread of the virus reasonably well. There was a massive hit on economy with the GDP contracting by 23.9 per cent in the June 2020 quarter. But this was a one-time impact and one shouldn’t read much into this. The economy is already treading the recovery path. Rural demand has been especially strong with urban and semi-urban demand also catching up gradually. The recovery in demand is evident in crude consumption with crude imports reaching 4.2 million barrels per day this month, the highest since March. 

The GST collection in October crossed Rs 1 lakh crore for the first time in eight months. Also, the festive sales have been quite encouraging with e-commerce giants recording their best openings of the festive seasons and passenger vehicle sales growing 14 per cent year-on-year in October. On the other hand, corporates have responded by streamlining their costs and accelerated the adoption of technology both in sales and operations. This is likely to create more efficient and profitable enterprises on the full normalisation of demand. We believe that Indian economy will emerge stronger taking into account the visible signs of recovery. Too much pessimism is actually a good time to accumulate as it looks like the beginning of a long-term bull cycle in India. 

Prasanna Pathak
Head of Equity, Taurus MF 

There are some good companies available with high dividend yield. In some cases, the market capitalisation is close to the cash and quoted investments. Such opportunities we tend to look at on a tactical basis. Broadly speaking, we tend to be positive on pharmaceuticals, diagnostic, FMCG and other consumer-facing companies. We do not expect a V-shaped recovery immediately. The markets and asset classes will consolidate for 5-6 months. There will be volatility. The economy will take longer to recover. 

However, since the equity markets tend to discount the next two years’ earnings, recovery in the markets may be quicker. E-commerce, online shopping, etc, will gain enormously, especially in a country like India. Also, acceptance of digital transformation or digital society will be more. Companies will have to re-assess their supply chain, health and safety management systems. Insurance will gain popularity considering the fear and recency bias that favours recent events over historic ones. Even food habits and consumption will tend to shift to more branded or packaged food players. 

Hitesh Jain
Lead Analyst (Institutional Equities), YES Securities 

In the current US elections there is a strong chance that Democrats will have a majority in the senate, which implies higher fiscal spending. In terms of connotation for the markets, we should brace for a transient sell-off in US’ equities and fall in US dollar. Therefore, gold could rally higher, helped by a tumbling US dollar and concerns of higher fiscal spending and potentially rising inflation.

Needless to mention, the Federal Reserve will remain tolerant of the same, with the central bank recently articulating that it will stand pat on interest rates for the next three years. In case of Joe Biden as the next US president, base metal prices should move higher as the US-China relationship will stabilise and the markets will start pricing in a probable trade deal. In case of a mixed equation, where Joe Biden turns out to be the next US president while the senate is controlled by the Republicans, the markets will construe this sort of power-sharing as an impasse on various reforms and nothing dramatic will be seen in the next four years.

Global Market Outlook

It is clear that investors are aware of the struggle against the ongoing pandemic and there is increasing realisation that the fight against the virus is far from over. However, investors are also reassured about the rebound in economic activity supported by the exceptionally low interest rates. Globally, the markets have also taken support from better than expected earnings. Several analysts tracking global equities have stopped cutting near-term profit forecasts and there have been many upgrades announced lately which indicates confidence in the overall recovery of the global markets.

Worldwide, the energy sector companies along with the financials are trading with some pressure while the technology and pharmaceutical stocks along with consumer staples are sailing smoothly enough. The defining moment for the world markets will be the reversing of this trend in 2021. Globally, the premium for owning quality growth stocks is peaking even as the discounts for out-of-favour stocks remain wide. The year 2021 could well reverse this course in favour of value stocks. The improvement in manufacturing data has enthused investors in Europe.

In the US markets investors have discounted the worst case scenario and are adopting a risk on trade, assuming a clear mandate in the presidential election. The markets have almost discounted a Joe Biden win, which will pave the way for a higher fiscal stimulus. Meanwhile, the markets want clarity and the results of the US’ elections will do away with the existing uncertainty so that the focus will again shift to earnings’ growth which will lead to increase in the risk appetite of investors and traders alike.

The upward bias in the equity prices in US with recovery in energy, industrial and material sector stocks hints that the market is gearing up for another round of stimulus. The risk on mood in the US markets augurs well for global equities. In fact, the American markets were under pressure because of the speculation that there would be no clear winner in the election race. However as more and more clarity emerges, investors are confident of a clear mandate for Joe Biden or Donald Trump.

Clarity is priceless when it comes to the equity markets. Investors now are definitely not as hazy about the US election outcome as they were 2-3 weeks before. The US dollar is expected to remain weak. And with this the commodity prices may do well along with the emerging market equities. The developed world is overweight with financial and cyclical stocks that populate the value factor. The US dollar benefits from the American stock market inflows and the positive interest differential. 

Conclusion

The stock market is a dynamic game, meaning that things keep changing all the time. The stocks that did well need not keep doing well and the stocks that did not perform well need not continue underperforming. In the coming months there is a good probability of sector rotation and the underperformers may be able to catch up. Financials is one sector that has underperformed and for valid reasons. One can expect the sector to do some catching up. Solid performances from the financial sector from this Diwali to the next cannot be ruled out. Housing finance companies are showing good momentum in stock prices and better earnings’ visibility than previously expected.

Select private banks are showing good promise and are emerging to be more profitable than early estimates. The US markets’ dominance may taper in the coming years even as the global economy stages a comeback. The Asian economic recovery has been superior and there is a strong case that the Asian equities will outperform US’ equities. The Indian markets will remain attractive for foreign buyers and the increased weightage for India by the MSCI is just an indication of things to come.

The dominance of technology stocks may not be repeated in the coming years even though the IT sector may continue to do well on the back of earnings’ growth. The focus may shift from IT and pharmaceuticals to consumption and financials and from the outperformers to the underperformers as also from the high-growth stocks to the beneficiaries of the recovery in the economy. The action could be very stock-specific and it may get difficult to identify a secular trend in the markets in the coming year.

A bottom-up approach of investing will be very useful. The most important skill that will be required for investors in the coming months will be the ability to identify growth at a reasonable price. The year 2020 has rewarded growth handsomely and pushed growth stocks to sky-high valuation levels. The universe of the so-called value stocks has underperformed in 2020. And since growth is paramount, one should focus on value as well an ideal strategy to beat the Sensex in the coming year by having a healthy mix of growth and value stocks.

A focused approach in portfolio construction with a judicious mix of quality growth stocks and quality value stocks while striking a balance across market capitalisation should be the right strategy to beat the markets. This way the volatility will also be mitigated. The GDP data is expected to improve and so is the profitability across the board for corporate India as the situation normalises. The key risk is of the surging virus cases across the globe. However, in all likelihood, the situation is expected to be under control as the infrastructure to handle surging cases today is much better than it was at the beginning of the year. Without ignoring the risks arising out of the rising cases both locally and globally, investors should avoid taking a negative view on equity by just looking at the rising number of corona virus cases.

The expected stimulus both in the Euro zone and the US economy is triggering a ‘feel good’ factor amongst global investors. Due to higher growth rates, the emerging markets are expected to outperform in 2021. The year 2020 was unique in the sense that the US markets or the developed world led the recovery post the pandemic. Usually it is the high-growth markets, cyclical markets and the emerging world that show the fastest recovery. One can expect speedy recovery on ground in the emerging markets, including India. The right steps by the current government in terms of incentivising several sectors and providing stimulus will ensure better macro-economic numbers in days to come.

One concern often raised by investors is that there is record debt to GDP ratio for several nations. Yes, the debts are rising and it is possible that inflation will increase globally, thus putting pressure on nominal interest rates in the future. One should not forget that the interest rates are at record low levels and this low interest rate regime may ensure smooth servicing of higher debts across the world. Higher debt levels on the national front should not act as a deterrent to equity investors – globally. If one thought that the US Federal Reserve and the central banks across the world did a fantastic job by cutting rates and infusing liquidity in 2020, the role of the central banks will be even more difficult in the coming year as there is limited scope for rate cuts.

That said, the commentary by the US Federal Reserve and central banks will be extremely important for equity investors to track in the coming year. All in all, the year ahead is going to be a volatile ride after a steady rise in equity prices. However, stocks may trade with a positive bias as recovery is definitely on the cards. The government’s response to the pandemic, central banks’ expansionary policies, rising profitability across the board and hope about the early distribution of a vaccine are some of the definite positive triggers that will trigger the bulls.

Investors can buy stocks this Diwali hoping for muted returns as compared to the previous six months’ returns. However, expecting low double-digit returns from the markets will not be a tall task. Maintaining a bullish perspective, we advise our readers to construct a portfolio with the following top ten stocks that we believe can beat the markets.

Aurobindo Pharma 

BSE CODE  : 524804
Face Value : Rs 1
CMP : Rs 782.30
Market Cap F F (Cr.) : 21,986.76

Aurobindo Pharmaceuticals Limited is a leading global pharmaceutical company. It is a market leader in semi-synthetic penicillin. It has a presence in segments such as neurosciences (CNS), cardiovascular (CVS), anti-retroviral, anti-diabetics, gastroenterology, antibiotics and generic formulations. The company is among the top two pharmaceutical companies in India in terms of consolidated revenues. It exports to over 150 countries across the globe with around 90 per cent of revenues derived from international operations. Aurobindo Pharmaceuticals is the seventh-largest generic company by revenues in the world and the second-largest listed Indian pharmaceutical company by revenues.

The company started its operations in 1988-89 with a single unit manufacturing semi-synthetic penicillin (SSP) at Pondicherry. Over the years the company has successfully launched a range of affordable products which are accessible across the globe. It also manufactures and sells nutritional supplements through its subsidiary. The company has more than 25 manufacturing facilities. On a consolidated basis, for Q1FY21 the company reported net sales of Rs 5,835.23 crore, an increase of 8.93 per cent as against the net sales of Rs 5,356.84 crore for Q1FY20. For Q1FY21 the company gained an operating profit of Rs 1,372.94 crore, an expansion by 18.13 per cent compared to the operating profit of Rs 1,162.18 crore gained in Q1FY20. 

Aurobindo Pharmaceuticals gained net profit of Rs 792.68 crore in Q1FY21, which is an expansion by 25.63 per cent compared to the net profit of Rs 630.97 crore gained in Q1FY20. On the annual front, in FY20 the company reported net sales of Rs 22,737.95 crore, an increase of 18.27 per cent over the net sales of Rs 19,225.92 crore reported in FY19. For FY20 its operating profit increased by 22.55 per cent to Rs 4,910.80 crore from Rs 4,007.32 crore reported in FY19. The company gained net profit of Rs 2,844.68 crore in FY20, which is an expansion by 20.45 per cent compared to the net profit of Rs 2,361.80 crore gained in FY19. Aurobindo Pharmaceuticals has shown consistent improvement on a quarter on quarter basis.

The US, which accounts for around 50 per cent of the consolidated revenue of the company, has provided final approval for 10 abbreviated new drug applications in the first quarter of this fiscal year. The company has also launched six products during the quarter including one injectable. It has recently signed an agreement to sell Natrol, which is a unit of its wholly-owned subsidiary in the US. The said unit has been sold at an attractive valuation. Aurobindo Pharmaceuticals is expected to use these funds for reducing its debt and make investments for future-ready products. It is collaborating with Biotechnology Industry Research Assistance Council (BIRAC), which has been set up by the Department of Biotechnology for the development of a vaccine for corona virus. Meanwhile, acquisition of the Apotex business is helping the company deepen its penetration in the European market. Hence, we recommend BUY. 

Axis Bank 

BSE CODE : 532215
Face Value : Rs 2
CMP : Rs 520.05
Market Cap F F (Cr.) : 1,33,359.82

Axis Bank is the third-largest private sector bank in India. The bank offers the entire spectrum of financial services to customer segments covering large and midcorporates, MSMEs, agriculture and retail businesses. On the financial front, the net interest earned by the bank in the second quarter of FY21 came in at Rs 16,299.76 crore as against Rs 15,712.66 crore in the corresponding quarter of the previous fiscal, clocking a growth of 3.73 per cent. The total income in Q2FY21 was Rs 20,446.79 crore, an increase by 2.81 per cent from Rs 19,886.36 crore in Q2FY20.

It gained net profit of Rs 1,849.05 crore in Q2FY21 as against net loss of Rs 18.14 crore incurred in Q2FY20. For Q2FY21, the GNPA percentage was 4.18 per cent as compared to 5.03 per cent in Q2FY20. CRAR ratio in Q2FY20 was 18.92 per cent while in Q2FY19 it was 18.23 per cent. During Q2FY21 the margins improved as a result of better spreads and lower interest reversals. Considering the financials on the annual front, the total interest income decreased by 14.46 per cent to Rs 63,715.68 crore in FY20 from Rs 56,043.65 crore in FY19. The total income fell by 13.98 per cent to Rs 80,057.67 crore in FY20 as compared to Rs 70,232.40 crore in FY19. For FY20 the GNPA percentage was 4.86 per cent as compared to 5.26 per cent in FY19. CRAR ratio in FY20 was 17.53 per cent while in FY19 it was 15.84 per cent.

For Q2FY21 Axis Bank posted healthy improvement in financials. The bank hopes to continue to see some traction in its retail business with disbursals in select secured segments reaching 95 per cent of the previous year. As the bank’s demand resolution trend that stood at 94 per cent in September 2020 has improved to 97 per cent, it further indicates the potential return to normalcy for Axis Bank. It has opted for a cautious approach in lending to commercial banking and the SME segment all the while focusing on secured retail loans and highly rated corporates. Over a period of mediumterm the bank expects loan growth to be 500-600 bps higher than the industry growth.

During Q2FY21 the slippages were lower at Rs 931 crore as against Rs 2,218 crore in Q1FY21. The only risks that could hinder the bank’s growth trend include worsening of the economic environment that will affect its loan growth and credit cost assumptions further leading to deterioration in the bank’s asset quality. But with increase in corporate loan growth, improved credit cover, higher collection efficiency, better liquidity management and manageable restructuring expectation, the bank is expected to see strong growth going forward. Additionally, Axis Bank’s subsidiaries continue to be doing well and growing, thus gaining larger market share and improved profitability. Hence, we recommend BUY. 

Bharti Airtel

BSE : 532454
Face Value : Rs 5
CMP : Rs 451.50
Market Cap F F (Cr.) : 1,08,668.16

Bharti Airtel is a leading provider of telecommunication services. Its operations are spread over 18 countries across Asia and Africa. The company’s services include mobile, voice and data solutions. The company provides telecom services with wireless and fixed-line technology, national and international long-distance connectivity, broadband services and complete telecom solutions to corporate customers. It also offers digital TV and IPTV services. Airtel Payments Bank, the digital payment solution of Bharti Airtel, offers the convenience of payments and money transfers on mobile phones in India, and across 14 countries in Africa. The company also implements infrastructure required for telecom operations through its subsidiary, Bharti Infratel Limited. 

The first mobile service was launched in New Delhi on September 27, 1995. Bharti Airtel ranks amongst the top three mobile service providers globally in terms of subscribers. The company operates in four business units, namely, mobile, telemedia, enterprise and digital television. Its OTT services include Airtel Thanks app for self-care, Airtel Xstream app for video, Wynk Music for entertainment and Airtel Blue Jeans for video conferencing. On a consolidated basis, for Q2FY21 the company reported net sales of Rs 25,785 crore, an increase of 22.02 per cent as against the net sales of Rs 21,131.30 crore for Q2FY20. 

For Q2FY21 the company gained an operating profit of Rs 11,790.90 crore, an expansion by 28.39 per cent compared to the operating profit of Rs 9,183.80 crore gained in Q2FY20. It gained net profit of Rs 8.40 crore in Q2FY21 against net loss of Rs 23,145.60 crore incurred in Q2FY20. On the annual front, in FY20 the company reported net sales of Rs 87,539 crore, an increase of 8.37 per cent over the net sales of Rs 80,780.20 crore reported in FY19. For FY20 operating profit increased by 42.53 per cent to Rs 38,416.90 crore from Rs 26,953.50 crore reported in FY19. Bharti Airtel incurred net loss of Rs 31,316.60 crore in FY20 as against the net profit of Rs 1,331.90 crore gained in FY19. 

The company posted its highest-ever consolidated quarterly revenues in Q2FY21. Its business has delivered strong growth across revenue, margins and customers. In Q2FY21 the mobile average revenue per user has been reported at Rs 162 as against Rs 128 in Q2FY20. The company has increased 4G data customers by 14.4 million in the last quarter. Demand is increasing across its global business and enterprise and government business. To further leverage growth from the current work from home phase, various products were launched. Low mobile broadband penetration and smart phone penetration in India provides an opportunity to Bharti Airtel in the form of the customer moving from feature phone to smart phone.

The company is creating an ecosystem of digital services and leveraging data, network and distribution assets to deliver these services to capture future growth. It is engaging in strategic partnerships leading to differentiated customers experience in order to win customers. As work from home becomes the new normal, it will lead to additional higher disposable income and habit changes so that the company will leverage the opportunities in existing homes’ broadband services. As there is less than 10 per cent fixed broadband penetration in 250+ million households in India, the company is making efforts to increase its footprint in the said segment. Hence, we recommend BUY. 

Dalmia Bharat

BSE  : 542216
Face Value : Rs 2
CMP : Rs 829.60
Market Cap F F (Cr.) : 7,147.19

Dalmia Bharat was formerly known as Odisha Cement Limited. It is a cement manufacturing company and its business segments include cement, refractory and power. Dalmia Bharat’s products include Portland Slag Cement (PSC), Portland Pozzolana Cement (PPC) and Portland Composite Cement (PCC). The company is popular for brands such as Dalmia DSP, Dalmia Cement, Dalmia Ultra, Dalmia Infra Green Cement and Konark. It is one of the top five cement companies in India with a capacity of around 26.1 MT, focusing on the southern region with 13.2 MT and the eastern and north-eastern regions with 12.9 MT. The company has overall market share of 5 per cent in the domestic cement sector. 

From the financial point of view, the net sales for Q1 of FY21 of the company were reported at Rs 1,974 crore, a decrease of 22.19 per cent as compared to the net sales of Rs 2,537 crore for Q2 of FY20. Its PBDT stood at Rs 596 crore and Rs 594 crore for Q2 of FY21 and FY20, respectively. In Q2FY21 the net profit was Rs 188 crore, an increase of 23.68 per cent when compared to the net profit of Rs 152 crore in the same quarter of the previous fiscal. Looking at the company’s annual financials, the net sales for FY20 were reported at Rs 9,674 crore, an increase of 2 per cent over the net sales of Rs 9,484 crore for FY19. For FY20 the PBDT of the company stood at Rs 1,885 crore, an increase of 15.29 per cent from the PBDT for FY19 which stood at Rs 1,635 crore.

In FY20 the company’s net profit decreased by 31.81 per cent to Rs 238 crore from the net profit of Rs 349 crore posted in FY19. Though the industry volumes are currently better, the company however remains cautious about the demand outlook in the short term due to the current uncertain situation in the cement sector. In spite of decline in volumes due to halting of business and construction activities as a result of the lockdowns, the company was able to soften the impact by controlling its discretionary spending coupled with benign fuel costs. Dalmia Bharat is also currently focusing on cost-saving measures such as setting up of waste heat recovery plants at various locations. 

In the very short term the cement sector looks to be engulfed with uncertainties but a positive recovery is expected in the coming fiscal years. The company is currently expanding its present capacity by around 40 per cent which will take around 6-18 months for the company to complete it. These expansions are taking place in the eastern region where it would be able to grab a bigger market share. Dalmia Bharat is expected to strongly benefit from its capacity expansions, thus portraying a robust growth outlook for the coming years. Hence we recommend BUY. 

HDFC 

BSE : 500010
Face Value : Rs 2
CMP : Rs 2085.00
Market Cap F F (Cr.) : 3,74,936.59

Housing Development Finance Corporation Limited (HDFC) is engaged in financing by way of loans the purchase or construction of residential houses, commercial real estate, etc. Its business segments include loans, life insurance, general insurance, asset management and others. It offers insurance products such as motor, health, travel, home and personal accident in the retail division and customised products such as property, marine, aviation and liability insurance in the corporate division. The company also provides portfolio management, mutual fund, property investment management, project management, investment consultancy and property-related services. 

From a consolidated point of view of its financials, HDFC reported interest income of Rs 11,231.51 crore for the second quarter of FY21 which is a mere decrease of 0.45 per cent compared to the interest income of Rs 11,282.65 crore for the fourth quarter of the previous fiscal year. Total income for Q2FY21 rose by 3.77 per cent to Rs 34,090.45 crore from Rs 32,850.89 crore posted in Q2FY20. Increase in total income was as a result of a rise in non-interest incomes. PBT for the second quarter of FY21 has contracted by 51.03 per cent to Rs 5,906.30 crore as against Rs 12,062.17 crore in the second quarter of FY20. Net profit fell by 53.15 per cent to Rs 5,035.41 crore in Q2FY21 from Rs 10,748.69 crore gained in Q2FY20.

On the annual financial front, the company reported interest income of Rs 45,253.26 crore for FY20, an increase of 10.25 per cent as compared to FY19 income of Rs 41,045.30 crore. Total income rose by 5.82 per cent to Rs 1,01,795.90 crore in FY20 from Rs 96,194.87 crore posted in FY19. For FY20 the PBT is Rs 26,193.25 crore as against Rs 22,098.96 crore in FY19. In FY20 the net profit increased by 29.23 per cent to Rs 22,826.47 crore compared to that in FY19 of Rs 17,662.23 crore. During Q2FY21 retail disbursements were affected due to the lockdown. Later on, on the basis of month-on-month, the trend has been improving in the individual business. In June 2020, retail disbursements stood at 68 per cent of the previous year’s level. Additionally, it is seen that the digital applications received for individual loans for June and July are nearly equivalent to last year’s level.

From this we can assume that there is strong demand for home loans. When compared to its peers, the company’s balance-sheet looks to be the strongest over its peers. HDFC mainly benefits from the strong economic value of its subsidiaries, thus strengthening its balance-sheet. Though the current economic condition looks a bit subdued in the real estate sector, individual housing is expected to be more focused on to draw revenues from. But still, with improved affordability in recent years, enhanced fiscal initiatives and creditlinked subsidy scheme from the government, the demand in individual and non-individual segments is expected to pick up. Hence, going forward, the outlook for HDFC remains to be very positive with robust AUM. Thus, we recommend our investor-readers to BUY. 

Hero Motocorp 

BSE : 500182
Face Value : Rs 2
CMP : Rs 2961.00
Market Cap F F (Cr.) : 38,423.37

Hero MotoCorp Limited is a two-wheeler manufacturer, manufacturing and selling motorised two-wheelers up to 350 cubic centimetres (cc) engine capacity, spare parts and related services. Some of its products include Karizma ZMR, Karizma, Xtreme Sports, Xtreme, Hunk, Impulse, Achiever, Ignitor, Glamour Programmed FI, Glamour, Super Splendor, Passion XPRO, etc. Hero MotoCorp is considered as a market leader in the domestic motorcycles’ segment. Looking at the quarterly trends on a consolidated basis, the company’s net sales for Q2FY21 increased by 23.66 per cent to Rs 9,473.32 crore from Rs 7,660.60 crore reported in Q2FY20. The PBDT stood at Rs 1,431.48 crore and Rs 1,234.93 crore for Q2FY21 and Q2FY20 respectively. For Q2FY21 Hero MotoCorp’s net profit increased by 9.32 per cent to Rs 950.85 crore from Rs 869.78 crore for Q2FY20.

The Q2FY21 earnings indicate improved performance of the company as a result of better economic conditions and strong product line-up combined with rationalisation of expenses and extensive cash preservation measures. On the annual front, the company’s net sales in FY20 were Rs 29,255.32 crore which is a 13.88 per cent decrease from the net sales of Rs 33,972.23 the previous fiscal year. PBDT for FY20 decreased by 4.34 per cent to Rs 5,422.21 crore compared to Rs 5,667.98 crore of FY19. In FY20 the company’s net profit increased by 6.44 per cent YoY to Rs 3,624.78 crore from Rs 3,405.59 crore in FY19.

Though during the recent quarters the company witnessed a rise in raw material costs, it was offset by decline in employee and other expenses. Being one of the strongest players in the domestic motorcycles’ segment, Hero MotoCorp was able to benefit from higher traction in rural areas. Currently, it seems that urban areas are now returning to normalcy post the implementation of the pandemic restrictions. As a result, an uptake in urban demand is also expected to be seen in the coming quarters. In the short-term, demand growth may receive a boost from the upcoming festive season. To cash in on demand during the festive season, the company continues to launch new variants across its motorcycle and scooter segments.

Additionally, government policies and improved credit availability will drive demand and supply growth for the automotive sector. The company has already hiked the prices of some of its products to protect its margins and going forward more hikes will allow the company to continue to maintain profitable margins. Even as Hero MotoCorp strategizes to focus on the premium segment by creating a complete portfolio of premium products across various segments and also across engine capacities, it has recently announced a deal with Harley Davidson that will aid Hero MotoCorp to improve its footing in the premium segment. Going forward, recovery in demand, resumption of supply chain and logistics, apt cash and cost management, hikes in product prices and taking advantage of the festive season will help the company to realise wider growth. Hence, we recommend BUY.

Nucleus Software 

BSE : 531209
Face Value : Rs 10
CMP : Rs 534.00
Market Cap F F (Cr.) : 492.34

Nucleus Software Exports provides services to banking and financial organisations worldwide, helping them succeed by providing pioneering products, innovative services and above all, solutions for their business needs. It offers lending and transaction banking products. The company’s software have solved the needs of more than 200 financial institutions in over 50 countries, supporting retail lending, corporate banking, cash management, mobile and internet banking, automotive finance and other business areas. Its major products are FinnOne Neo™ - a lending solution, FinnAxia™ - transaction banking solution, and PaySe™ – which facilitates onboarding process for financial institutes. The company has products in lending, transaction banking, digital channels and business analytics. It serves segments like retail banking, corporate banking, Islamic banking and other segments. 

On a consolidated basis, for Q2FY21 the company reported net sales of Rs 136.99 crore, an increase of 6.84 per cent, as against net sales of Rs 128.22 crore for Q2FY20. For Q2FY21 the company gained an operating profit of Rs 42.76 crore, expanding by 32.63 per cent compared to the operating profit of Rs 32.24 crore gained in Q2FY20. Nucleus Software Exports gained net profit of Rs 29.45 crore in Q2FY21, which is an expansion by 39.64 per cent compared to the net profit of Rs 21.09 crore gained in Q2FY20. On the annual front, in FY20 the company reported net sales of Rs 520.83 crore, an increase of 7.6 per cent over the net sales of Rs 484.03 crore reported in FY19. For FY20 its operating profit increased by 23.16 per cent to Rs 131.45 crore from Rs 106.73 crore reported in FY19.

Nucleus Software Exports gained net profit of Rs 88.99 crore in FY20, which is an expansion by 19.39 per cent compared to the net profit of Rs 74.54 crore gained in FY19. The company has continued investments in product development to ensure these remain functionally and technologically advanced to achieve higher acceptance in the market. It is focusing on key markets such as India, South East Asia, the Middle East and Africa, as well as growing markets in Australia and Europe. In the last quarter the company has made good progress on all business metrics. It has launched a range of innovative solutions during the last year and has also provided very quick upgrades to its major applications. During the second quarter of fiscal year 2020, the company has added four new customers from various geographies.

It has won 10 product orders and implemented 17 product modules worldwide during the quarter. Muthoot Fincorp has selected FinnOne Neo to drive the next phase of its business growth. Recognition of FinnOne Neo as among the top three retail loan origination systems worldwide by AITE Group will help in getting business. The company is leveraging digital capabilities like virtual assistants, augmented channel-based acquisition capability, messaging applications and geo tracking to offer end-to-end digitisation of the loan lifecycle. PaySe, which facilitates on-boarding process for financial institutes, is also gaining attention in a number of state and central government digital payment initiatives. Hence, we recommend BUY. 

Prestige Estates 

BSE : 533274
Face Value : Rs 10
CMP : Rs 248.00
Market Cap F F (Cr.) : 2,975.20 

Prestige Estates Projects Limited is engaged in the business of real estate development. Its principal services include development and construction of properties, leasing of commercial properties and share of profit or loss from the partnership firm. The company operates in five segments – residential, commercial, retail, hospitality and real estate services. Its geographical segments primarily include Bengaluru, Chennai, Kochi, Hyderabad and Mysuru. The company’s residential segment focuses on diversified portfolios, including apartments and villas while the commercial segment focuses on office spaces and special economic zones. 

The retail segment includes malls and logistics and the hospitality segment consists of resorts and service apartments. Its real estate services focus on fit-out services and interior design and execution. Looking at the quarterly trends on a consolidated basis, the company’s net sales for Q1FY21 decreased by 17.22 per cent to Rs 1,273.70 crore from Rs 1,538.72 crore reported in Q1FY20. PBDT stood at Rs 214.80 crore and Rs 353.70 crore for Q1FY21 and Q1FY20, respectively. For Q1FY21 its net profit declined by 82.24 per cent to Rs 21.20 crore from Rs 119.40 crore for Q1FY20. On the annual front, the company’s net sales in FY20 were Rs 8,124.80 crore, which is a 57.1 per cent increase from the net sales of Rs 5,171.90 crore in the previous fiscal year.

The PBDT for FY20 increased by 59.68 per cent to Rs 1,489.20 crore compared to Rs 932.60 crore of FY19. In FY20 the company’s net profit increased by 32.34 per cent YoY to Rs 544.20 crore from Rs 411.20 crore in FY19. The real estate sector was severely affected because of the pandemic-triggered lockdowns. Currently it can be seen recovering in some sense. The company has been able to maintain a steady cash flow. With labour availability gradually picking up, things are looking good of the company’s projects in Bengaluru. The company’s office leasing segment currently has regained momentum and is performing well but the malls and hospitality segment is still shy of recovery. With opening of the malls a recovery in the segment is also expected. Overall, as the economic conditions will improve the pent-up demand will lead to a strong growth trend for the company. Thus, based on analysis we recommend our investor readers to BUY the scrip. 

Relaxo Footwear 

BSE : 530517
Face Value : Rs 1
CMP : Rs 687.00
Market Cap F F (Cr.) :  4,455.15

Relaxo Footwears Limited has established itself as one of the most stalwart, qualityconscious and experimental footwear companies in India. It is one of the largest footwear manufacturing companies in India and offers products such as rubber slippers, canvas shoes, sports shoes, sandals, school shoes and other types of footwear for women, men and children. Its portfolio of brands includes Relaxo, Sparx, Flite and Bahamas. The company sells its products through 50,000 retailers served through distributors, 390 retail outlets, exports and e-commerce. The company has eight manufacturing units spread in the northern part of India and has a presence in 25 countries around the world. 

Relaxo produces over 6 lakh pairs of footwear every day. It was founded in 1976 by Mukund Lal Dua and Ramesh Kumar Dua and is headquartered in New Delhi. The company has experienced tremendous growth in the last 10 years. It had a sale of around Rs 1 million in the year 1977 and now in the last financial year it has crossed the mark of Rs 2,400 million. Looking at the quarterly trends on a standalone basis, for Q2FY21 the company reported net sales of Rs 575.87 crore, a decrease of 7.38 per cent as against the net sales of Rs 621.77 crore for Q2FY20. For Q2FY21 the company gained an operating profit of Rs 131.94 crore, expanding by 24.04 per cent compared to the operating profit of Rs 106.37 crore gained in Q2FY20. 

The company gained net profit of Rs 75.10 crore in Q2FY21, which is an expansion by 6.46 per cent compared to the net profit of Rs 70.54 crore gained in Q2FY20. On the annual front, in FY20 the company reported net sales of Rs 2,410.48 crore, an increase of 5.17 per cent over the net sales of Rs 2,292.08 crore reported in FY19. For FY20 its operating profit increased by 23.93 per cent to Rs 418 crore from Rs 337.29 crore reported in FY19. Relaxo Footwears gained net profit of Rs 226.25 crore in FY20, which is an expansion by 28.96 per cent compared to the net profit of Rs 175.44 crore gained in FY19. The company’s last quarter performance was better than expected. Its operations are almost at the prepandemic levels and the liquidity position is also very good. 

With the easing of restrictions imposed by the lockdowns, the demand for its products is in an upward trend, which will see a surge in tune with the festive season. The company is focused on improving its distribution network by improving its supply chain. The pan- India distribution network of the company will be able to meet the changing behaviour of tier II and III cities of becoming more brand-centric. The company is increasing the delivery of its products through its own website and partnering with another e-commerce website. Sales growth has been faster in rural than urban areas and since a larger chunk of population in India is in villages, the company is bound to benefit from this. The company is heavily investing in branding and advertising. Hence, we recommend BUY. 

Tata Consumer Products 

BSE : 500800
Face Value : Rs 1
CMP : Rs 494.50
Market Cap F F (Cr.) : 29,059.11

Tata Consumer Products is focused on the food and beverage business of the Tata Group. It has brands such as Tata Tea, Tetley, Tata Salt, Tata Sampann, Vitax, Eight O’Clock Coffee, Himalayan Natural Mineral Water, Tata Coffee Grand and Joekels. The company has a combined reach of over 200 million households in India. Tata Consumer Products’ portfolio ranges from tea, coffee, water and ready-to-drink beverages to salt, pulses, spices, ready-to-eat snacks, and more. Tata Global Beverages was renamed as Tata Consumer Products after merging the consumer products business of Tata Chemicals with itself. The company has a JV with Starbucks and PepsiCo. 

With Starbucks it operates cafes and with PepsiCo it sells non-carbonated readyto- drink beverages that focus on health and enhanced wellness. Tata Consumer Products in the beverages business is the second-largest player in branded tea in the world with more than 330 million servings everyday across the globe. The company has a presence in major countries of the world such as the USA where it has an agreement with Green Mountain Coffee Roasters’ Keurig single-serve machines for Eight O’Clock coffee as well as with K-Fee for MAP coffee in Australia and with Tassimo in Canada for Tetley tea. 

Looking at the quarterly trends on a consolidated basis, for Q1FY21 the company reported net sales of Rs 2,713.91 crore, an increase of 13.44 per cent, as against the net sales of Rs 2,392.36 crore for Q1FY20. For Q1FY21 the company gained an operating profit of Rs 515.36 crore, expanding by 34.22 per cent compared to the operating profit of Rs 383.96 crore gained in Q1FY20. Tata Consumer Products gained a net profit of Rs 389.09 crore in Q1FY21, which is an expansion by 96.99 per cent compared to the net profit of Rs 197.52 crore gained in Q1FY20. 

On the annual front, in FY20 the company reported net sales of Rs 9,637.42 crore, an increase of 32.9 per cent over the net sales of Rs 7,251.50 crore reported in FY19. For FY20 the operating profit increased by 48.85 per cent to Rs 1,403.74 crore from Rs 943.04 crore reported in FY19. Tata Consumer Products gained net profit of Rs 535.19 crore in FY20, which is an expansion by 12.95 per cent compared to the net profit of Rs 473.83 crore gained in FY19. The company’s Q1FY21 consolidated performance was above expectations on the revenue and PAT front. Its key segments reported strong revenue growth and performance is headed in the right direction. 

The company has recently acquired 50 per cent stake of PepsiCo in NourishCo Beverages. With this it has plans to expand its market share in the beverage business. It also has plans to open more Starbucks’ stores across the country. The company is following strong marketing campaigns and adopting new routes to reach the end consumer effectively. The integration of its food and beverage businesses is expected to give significant synergy benefits to the company. The company has also been active in introducing new products in the Indian and international markets to meet the changing demand. The long-term drivers look robust. Hence, we recommend BUY.