The prospect of the economy bottoming out or the likelihood of the new government announcing sector-specific reforms have made analysts bullish on these stocks.
For instance, analysts believe the auto battery manufacturer Exide is likely to gain from a recovery in auto sales. We believe that after nearly two years of muted demand, auto sales volumes have bottomed out and while a near-term recovery is uncertain, we are more positive on the growth prospects in FY16. We have recently increased our FY15 volume growth projections for the Indian passenger vehicle segment, investment banking firm Citi said in a report. As many as 20 analysts have a 'buy' call on the stock, according to Bloomberg.
Exide reported revenue growth of 30.6% in FY14 with an Ebitda margin of 13.8%.
For OMCs, brokerages have turned bullish due to falling under-recoveries and prices of Brent crude. Both HPCL and BPCL trade below their long-term average valuations.
Based on our sensitivity analysis on changes in marketing margins for oil marketing companies (OMCs), we see 96% and 58% upside risk to our FY16E EPS for buy-rated HPCL and BPCL, respectively, if gasoil marketing margins in India converge to that in China, Goldman Sachs in a recent report. In FY14, HPCL saw a 115% jump in its net profit and 8.3% growth in its revenues with an Ebitda margin of 2.5%. Meanwhile, BPCL saw its net profit surge 1.7% and its top line improve by 9.2% with Ebitda margin of 3.8% in FY14.
Brokerages add that with Sensex companies return on equity below long-term averages, there is more room for upside. BSE Sensex trades at a PE of 16x, which is just a premium of 3% to its historic averages; PB at 2.6x is at 2% discount to its averages. Sensex RoE at 16.6% is below the long period average of 19%, Motilal Oswal Financial Services said in a report.