Brokerages bullish on cyclical stocks in new samvat

Written by Jash Kriplani | Mumbai | Updated: Oct 23 2014, 22:14pm hrs
SensexBanking and auto sectors, received seven 'buy' calls each from brokerages. (Reuters)
With expectations of a recovery in the economy, domestic brokerages see cyclical stocks outperforming defensives in Samvat 2071.

Banking and auto sectors, received seven 'buy' calls each from brokerages. The pharma sector received five 'buy' calls, while the IT sector received only one 'buy' call. Among 12 brokerages surveyed by FE, only Kotak Securities had a recommendation in the IT space Infosys. From the current market price of R3794.70, Kotak Securities see an upside of 10.44% for Infosys in Samvat 2071.

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Brokerages prefer private banks over PSBs with only SBI in their list, as per our survey. Brokerages are overweight on the small-cap DCB Bank with two brokerages, Edelweiss and Motilal Oswal, recommending the stock for the new year. Motilal Oswal sees an upside of 27.31% for DCB Bank in Samvat 2071.

DCB's new management restructured its balance sheet, improved underwriting standards with more focus on secured loans and other stringent criteria for loan approvals. We expect DCB to double its advances book in the next three years translating to a CAGR of 25%, said Rahul Shah, vice-president (equity advisory group) at Motilal Oswal Securities.

We estimate a 20% CAGR in its loan book over the next 2 years, well ahead of industry average, said Vinay Khattar, associate director & head of research at Edelweiss.

Vaibhav Agarwal, VP-Research at Angel Broking, has recommended Axis Bank with target price of Rs 501. Bonanza and Anand Rathi like Indusind Bank and ING Vysya Bank, respectively. Prabhudas Liladhar sees HDFC Bank as the best bet in the banking space.

In the auto sector, Maruti has received the vote of confidence from IIFL and Kotak Securities. Maruti Suzuki is one of the best proxy-play on the expected economic recovery in the country. Macro headwinds in the past couple of years had weakened demand for passenger cars. However, in this phase, MSIL has emerged stronger with market share gains, line up of new launches, increased localisation and deeper presence in domestic markets, said Amar Ambani, head of research, IIFL.

LKP Securities (Hero Motocorp), Anand Rathi (Balkrishna Industries), Equentis (Apollo Tyres), Edelweiss (Bharat Forge) and Geojit BNP Paribas (Banco Products) all have one recommendation from the auto space.

According to S Ranganathan, head of research at LKP Securities, with a market share of over 36% in India Hero Motocorp earning is expected to grow 34% this fiscal led by new launches.

Anand Rathi, which specialises in the mid-cap space, says the off-highway tyre manufacturer Balkrishna Industries look attractive due its niche market and softening of rubber prices. Its niche presence and advantage of manufacturing enable the company to manufacture products at a lower cost, and thereby earn superior Ebitda margins compared with other tyre manufacturers. With rubber prices ruling at five-year low, and with rupee depreciation in the past 2 years, BIL has witnessed a boost both for its revenues as well as its Ebitda margin, Anand Rathi's institutional desk said. The fall in rubber prices, has also prompted Vikram Dhawan, Director at Equentis Capital, to make a recommendation in the tyre industry Apollo Tyres.