Going for growth and recovery stocks in 2021? Kotak Securities suggests investors buy these shares

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Updated: Dec 17, 2020 2:48 PM

The run in equities in the recent months has now left less scope for re-rating but de-rating could be on the cards if volumes and revenues were to disappoint versus consensus expectations. 

Japan's benchmark Nikkei 225 shed 0.4per cent to finish at 27,158.63 as the government was preparing to declare a state of emergency in Tokyo and several surrounding areas.

For the coming year, Kotak Securities’ target for the 50-stock NSE Nifty is at 13,500, a level that the index has already breached. However, despite this, it expects 2021 to be a better year with likely strong recovery in both the economy and earnings. “With many sectors and stocks looking fairly valued and offering limited scope for re-rating, returns will likely follow roll-forward or potential upgrades in earnings,” analysts at Kotak Securities said. In the pandemic-struck 2020, Nifty has managed to gain 12% so far.

Kotak Securities expects moderate earnings upgrades over the next few months. “We see likely modest-to-moderate returns in most sectors in CY2021 versus the large range in sector returns in CY2020,” they added. The run in equities in the recent months has now left less scope for re-rating but de-rating could be on the cards if volumes and revenues were to disappoint versus consensus expectations. 

The brokerage firm recommends a mix of long-term structural growth and re-opening stocks in its large-cap portfolio. Although it does not see re-rating but expects absolute returns in line with earnings growth. Here, Kotak Securities has assigned 25.3% weight to bank stocks which include Axis Bank, HDFC Bank, ICICI Bank, and SBI. Automobile sector has a 3.9% weight with Bajaj Auto and M&M. The brokerage firm has a 2.7% weight assigned to the Capital Good sector in Larsen & Toubro. Consumer staples have been given 13.4% weight with HUL having the highest weightage among these, followed by Godrej Consumer Products, United Breweries, Britannia Industries, Colgate Palmolive, ITC, and United Spirits.

In the diversified financial space, HDFC is the only stock picked by Kotak Securities with a 8.5% weight. Gas and electric utilities have a weight of 1.8% and 2% respectively, invested in Petronet LNG and Power Grid. IT services have been assigned a 15.8% weight with Infosys being the heavyweight followed by HCL Technologies, TCS, and Tech Mahindra. The insurance sector has been given a 3.4% weight with ICICI Prudential Life and SBI Life Insurance as the preferred picks. Among pharma stocks Cipla and Lupin combined have been given a 3.7% weight in the portfolio. The brokerage firm also advises picking Reliance Industries Limited with an 8.3% weight, Titan Company with 2.1% and Bharti Airtel with 4.1% weight.

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