India’s equity market indices are rallying, buoyed by strengthening rupee, newfound political stability after recently state elections, almost certain implementation of GST, a huge appetite for IPOs, expected revival in corporate earnings growth, foreign investors’ confidence in the Indian economy, and falling commodity prices. The benchmark Sensex and Nifty closed at record highs on Monday – the first trading day of the new financial year 2017-18.
Amid some caution over the valuation of Indian equity markets, SMC Research recommends making systematic investments on corrections in the markets. Here are SMC Research’s top five investment ideas backed by fundamentals, in which, it says, investors could make a systematic and gradual approach for investment opportunities.
Kotak Mahindra Bank
During Q3FY17, it has shown healthy improvement in asset quality and net interest margins (NIMs). NIMs have improved to 4.49% in Q3FY2017 compared with 4.47% in the previous quarter and 4.34% in the corresponding quarter last year. On the consolidated front, the bank has reported 34% growth in the Net Profit to Rs 1266.59 crore for the quarter ended December 2016, up from Rs 945.16 crore in the quarter ended December 2015. Net Interest Income increased by 16% to Rs 2747.05 crore, while other income moved up by 11% to Rs 2003.97 crore. At a price of Rs 872.10* the stock was trading at a Price-to-Earning multiple of 45.29 and Price- to-Book value multiple of 4.50 at a book value of Rs 193.90 per share.
State Bank of India
SBI has been consistently improving asset quality, cost efficiency, other income and productivity in the past quarters. Moreover, with the support of favourable market conditions, it has posted strong growth in treasury income and foreign exchange earnings (driven by Iranian oil payments going through the bank). In addition to that, Government initiatives to support PSUs in terms of capital allocation, a mechanism to deal with bad assets, the formation of bankruptcy law and setting up of the stressed assets fund under National Infrastructure Investment Fund is expected to provide the next leg of potential growth.At a price of Rs 292.60* the stock was trading at a Price-to-Earning multiple of 52.09 and Price- to-Book value multiple of 1.05 at book value of Rs 278.92.
The company enjoys global leadership positions in textiles and carries an unmatched domestic portfolio of apparel brands and retail formats. With lower investments in brands and the repositioning of “Unlimited”, management of the company expects the operating margins to improve in near term. With company’s capability in manufacturing garments, coupled with its positioning of the most preferred franchise/distribution partner in India, it is poised to benefit from an increase in demand for apparels. At a price of Rs 393.80* the stock was trading at a Price-to-Earning multiple of 30.15 and Price- to-Book value multiple of 3.98 at book value of Rs 98.96.
Technology up gradation and cost control remain the important part of the Company’s strategy to improve the bottom-line. Efforts of the Management towards cost reduction have started bearing fruits. At a price of Rs 223.95* the stock was trading at a Price-to-Earning multiple of 28.61 and Price- to-Book value multiple of 4.45 at book value of Rs.50.35.
Larsen and Toubro
Given the healthy order book coupled with consistent improvement in net working capital and government’s thrust on infrastructure development & expected improvement in domestic execution, it is expected that the company would do well in coming quarters. At a price of Rs 1577.60* the stock was trading at a Price-to-Earning multiple of 28.59 and Price- to-Book value multiple of 3.18 at book value of Rs.495.47.
*Price as on 31st March 2017