Bernstein analysts in their India strategy report said that they anticipate a struggle to get incremental returns in the broader markets and indices, especially after the phenomenal run-up last year. However they still believe there are some bottom-up areas where fundamentals look attractive and which have been lagging compared to others in terms of returns, suggesting space for factoring in more positives.
Bottom-up ideas in Bernstein India Model Portfolio
The 9 bottom-up Ideas in Bernstein India Model Portfolio Include HDFC Bank, Axis Bank, Infosys, Larsen & Toubro, NTPC , Bharti Airtel , Reliance Industries, Cipla, Adani Ports and Special Economic Zone .
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Analysts at Bernstein continue to remain positive on financials, which is further helped by its lagging performance in 2023 and they believe it will be a key sector which is also an enabler of the current capex cycle for India. Overall credit growth will, as a result, continue to be resilient even growth though small ticket loans may be hit for some time due to the RBI regulation, said analysts at Bernstein.
HDFC Bank and Axis Bank continue to be in their portfolio. L&T and NTPC are other winners from this cycle, where L&T as per the Bernstein analysts is a great proxy for infra growth in both India and the Middle East and continues to see strong order inflows. NTPC as per Bernstein analysts is the only large thermal player investing in solving the evening power shortage crisis, besides its thermal operations, generating enough cash flow to sustain capex in the renewable segment.
Infosys as per Bernstein has been pioneering the age of Artificial Intelligence deals in India and will be a key driver of growth in IT services. While near-term growth for Infosys, even in the December quarter, is not strong, Bernstein analysts do see a bottoming emerging.
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New additions to the model portfolio
Bharti Airtel, Reliance Industries, Cipla, Adani Ports, are the new additions to Bernstein’s model Portfolio.
The portfolio additions are dominated by large, tried and tested players from sectors liked by Bernstein. Reliance has made a comeback after a relatively subdued few months, where continued growth is expected to improve the outlook, said analysts at Bernstein. Bharti is their way of encashing growth in the Telecom sector, with rapid expansion in cities and price hikes giving way to a higher ARPU (average revenue per user). Cipla is their top pick in healthcare which will be helped by many near term catalysts, while Adani Ports is a pick likely to benefit from the booming cycle as well as the continuity of power in elections.
Churned out stocks
The churned-out stocks from Bernstein model portfolio include Biocon, Paytm, Zomato, Ultratech Cement and Delhivery.
While Bernstein analysts remains overall positive on healthcare, they have removed Biocon as they see a lack of strong enough short-term levers to propel the growth.
With RBI’s increase in capital requirements for personal loans from 100 to 125%, Paytm’s biggest and most important growth prospect has been severely dampened, said Bernstein analysts.
Zomato saw quite a bit of run-up last year, with the share price more than doubling from less than 50 to over 120, while the loss to breakeven theme is now already factored in. Bernstein analysts continue to be positive long-term on the stock but will wait for a better entry point to include it in their portfolio, as any incremental returns over the current over 100% returns will be hard to justify.
Delhivery is another idea where they will wait for a catalyst, as consumption pick-up will be required to boost logistics
While positive on the real estate cycle overall, given the 50% run-up last year and P/E (price to earnings) multiples in excess of 50, Bernstein analysts are not sufficiently comfortable to warrant a continuation of Ultratech in their portfolio
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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Published: 05 Jan 2024, 10:18 AM IST