Indian equities enjoyed an elongated bull run in 2017 despite a continuous exit of FPIs (foreign portfolio investors) in H2 2017. Indian stock markets emerged as one of the top performers among the major economies of the world in 2017 with the key equity indices Sensex and Nifty returning about 28%. However, there were a couple of jerks amid the unmatched rise of domestic markets but several factors kept the momentum going along, namely, Moody’s sovereign credit rating upgrade to Baa2, announcement of Rs 2.11 lakh crore PSU bank recapitalisation programme, and World Bank Ease of Doing Business rating upgrade — in which India leapfrogged 30 countries and entered into the league of top 100 nations.
As far as the emerging markets were concerned, India only just performed in line with emerging-market peers as foreign investors lowered their 2017 weighting for India due to expensive valuations, downward EPS revisions and better alternatives elsewhere, CLSA said in a report. But going forward, CLSA said that the trajectory of corporate earnings will improve meaningfully this year with disruptive changes like demonetisation and GST implementation behind us and will likely serve as a solid foundation for long-term improvement in economic growth rates and corporate profitability. With focus investment in stock markets in the new year 2018, we bring to you 7 blue-chip stocks recommended by CLSA to buy and gain up to 26%.
Shares of India’s largest housing financier HDFC have returned 40% in the last 12-month period. The research and brokerage firm CLSA has given a target price of Rs 1,900 which implies an upside of 12% from the current market price of Rs 1700. “Best play on the housing market recovery. Mortgage business trades at an attractive 15 times March 2019 EPS,” CLSA said.
Shares of ICICI Bank have grown 38% over the last one year term. CLSA has given a target price of Rs 380 implying an upside of 22% from the recommendation price. ”The NPL cycle has peaked and the resolution process should help. Adjusted book at 1.8 times March 2018 looks attractive,” CLSA said in a report.
Shares of IndusInd Bank have risen 48% in last one year. CLSA has given a target price of Rs 2,060 which implies a potential upside of 26 percent from the current market price of Rs 1630. “One of the fastest and most stable growth profiles. Price-to-book of 4.3 times March 2018 is not cheap, but the premium justified,” CLSA said in a report.
Other blue-chip stocks recommended by CLSA
|Scrip Name||TP (Rs)||Upside (%)||Drivers for stock rating|
|L&T||1,500||21||Beneficiary of the government’s infrastructure push, especially in roads and urban. Should benefit from real estate recovery as well.|
|Lupin||1,030||17||Implied US valuations at distressed levels. Early resolution of USFDA issues could lead to re-rating.|
|Mahindra & Mahindra||885||20||Beneficiary of the expected rural pick-up. One of the cheapest consumption plays with 12-13 times implied auto business multiple.|
|NTPC||200||16||Project commercialisation to drive a 25% CAGR in regulated equity over FY17-20. Attractive valuation despite a lower return on equity.|
Key takeaways from CLSA’s India Theme 2018
- With nearly 50% of non-performing loans (NPLs) to be resolved, bank NPL ratios will fall YoY in FY19 and further in FY20. CLSA believes provisioning will also be lower in FY19 YoY.
- CLSA expects Nifty earnings to dramatically improve from a 4% CAGR (compounded annual growth rate) over the past five years to 15-20% over the next two years as corporate earnings return to normal.
- According to CLSA, Nifty will hit 11,400 in December 2018, offering a 10% total return.
- Going ahead in 2018, the key risks to the stock market are potential fiscal slippage driving bond yields up further, higher taxes on equities and political uncertainties ahead of the national elections in H1 2019.