Selloff Alert: 4 Fundamentally Strong Stocks to Add to Your Watchlist

As stock markets hate uncertainty, Russia’s official invasion of Ukraine, after weeks of stance, was met with panic in global markets.

Reflecting global sentiment, the major indices of the Indian stock market, Sensex and Nifty, have fallen 10%-12% from their peak in January.

Adding fuel to the fire, skyrocketing inflation, heavy selling by FIIs, Fed rate hike, supply chain disruption, geopolitical tensions, rising crude oil prices coupled with rising concerns have kept the market on edge.

There is no doubt that shock and fear are the top emotions in the market at the moment. Investors and traders alike are scared. The sentiment has got a big blow.

While such corrections cause panic, they provide an opportunity for long-term investors to diversify their portfolios and load up on poor-quality stocks.

Investors are therefore encouraged to use this crisis as leverage and gradually build up long-term holdings in quality companies.

Presenting Tanushree Banerjee, Co-Head of Research at Equitymaster, in her own words…

Indian markets have been volatile in the past few weeks due to earnings gloom, concerns over interest rate hike, commodity prices etc. The war has added to the uncertainty.

Temporary uncertainty for long-term investors can be an opportunity to buy into businesses that remain solid wealth makers and offer a margin of safety in valuations.

In this article, we list the top 4 fundamentally strong stocks to add to your watchlist.

1. Indiamart Intermesh

Indiamart Intermesh, the first and largest Business to Business (B2B) digital marketplace in the country, today stands as a game-changer in the B2B landscape.

The company provides B2B and customer to customer sales services through its web portal.

It focuses on integrating small and medium businesses (SMEs) into a fast-paced and easy-to-use platform.

The firm has around 60% market share in the online B2B classifieds space making it the largest player in the industry.

It has a total traffic of 6m supplier storefronts, 102m registered buyers and 748m repeat users.

Indiamart reported consolidated revenue of 1.9 billion in the December 2022 quarter, a year-on-year (YoY) increase of 8%. This was driven by an improvement in receipts from existing customers and an increase in the number of paying subscriptions.

Its profit before tax (PBT) was 930 meters and stayed on the net profit 700 m, representing margins of 44% and 33%, respectively.

In addition, the company is almost debt free,

It has delivered decent profit growth of 52.1% Compound Annual Growth Rate (CAGR) over the last 5 years.

Over the past few quarters, the company has been investing in manpower and talent retention to fuel growth.

In addition, it has been actively executing acquisitions for the past one year. IndiaMART has recently invested in Realbooks, Busy Infotech, Vyapar, Legistify, FleetX and Shipway to add services such as bookkeeping, inventory management, invoicing and logistics solutions.

With these acquisitions, the company will be able to grow its business faster going forward.

The company’s shares have been under pressure for the past one year. The counter has improved by more than 45 percent.

2. Manappuram Finance

Manappuram Finance is an Indian non-banking financial company (NBFC) based in Kerala.

It offers a wide range of fund based and fee based services including gold loan, money exchange facilities, housing loan and commercial vehicle loan.

Manappuram Finance has an extensive branch network of 3,500+ branches spread across 28 states of the country.

Recently, the company announced weak numbers during the third quarter of FY 2022. It reported a decline of nearly 46% in its net profit. 2.6 billion against a net profit of 4.8 billion in the year-ago quarter.

Manappuram’s results were impacted by the shift from high-yielding to low-yield gold loans, as well as increased costs due to aggressive marketing efforts/ad-spending.

In order to recoup the lost share of the high-ticket customer base and compete with peers, the firm has changed its business strategy and reduced the yield thereby impacting margins.

Due to this change in business model, the company’s Gold Loan Asset Under Management (AUM) grew by 9% on the quarter (QoQ), but it is coming in at a lower rate which has impacted spread and profitability.

However, in the last 5 years, the company has delivered decent profit growth of 37.3% CAGR. It also has a strong return on equity (ROE) track record – 3 year ROE of 26.11%.

The company has a good dividend track record and has declared dividend continuously for the last 5 years.

In the last one year, the share price of Manappuram Finance has declined by 35.8% on BSE.

3. IOL Chemical & Pharmaceuticals

IOL Chemicals & Pharmaceuticals is a leading Pharmaceutical (API) company. It is an important player in the specialty chemicals sector. It serves the domestic and export markets.

The company manufactures various APIs for various therapeutic areas such as pain management, anti-diabetic, anti-platelet, anti-cholesterol and others.

It is the largest producer of ibuprofen with a global share of 35% and the only company worldwide that is backward integrated for all intermediates of ibuprofen.

Apart from this, the company manufactures various specialty chemicals like Ethyl Acetate, Iso Butyl Benzene, Mono Chloro Acetic Acid, Acetyl Chloride and others.

Its products find applications in industries such as food processing, flexible packaging, pharma, chemical intermediates, textiles, inks, paints and pesticides.

Since 2019, the company has seen significant increase in profitability margin mainly due to expansion in manufacturing facility amid supply constraints due to increasing demand for its 2 flagship products i.e. Ibuprofen and Ethyl Acetate.

In the last five years, Smallcap Pharma Company has registered decent profit and sales growth of 67.4% and 28% CAGR respectively.

In addition, IOL Chemicals has delivered an average dividend growth of 41% per year over the past two years.

The company’s margin, on the other hand, declined year-on-year to 10.7% versus 30.7%. Its profits have also declined by 65%. 400.7 m due to weak pharma’s operating performance.

However, the company is confident of delivering 15% earnings before interest and taxes (EBIT) numbers on a permanent basis. As per a report, the non-ibuprofen business is likely to see improvement in topline and bottomline.

4. Ceat

CEAT, established in 1958, is one of the largest tire manufacturers and one of the fastest growing tire companies in India.

In the year 2020, CEAT ranked 35th among the 100 best companies in India to work for by the Great Place to Work Institute. It was recognized as one of the best companies in the Auto & Auto Components industry.

The company exports to 90+ countries which are classified into 7 groups for ease of operation.

The tire maker has established relationships with major Original Equipment Manufacturers (OEMs) like Tata Motors, Ashok Leyland, Escorts, Mahindra, Maruti, Hyundai, Kia, Volkswagen, Honda, Royal Enfield, Bajaj, Piaggio, etc.

Ceat’s major revenue segments include automobile tubes, scrap, other operating revenue and royalty income. Currently, the truck and bus category contributes most of its revenue.

For the quarter ended December 2022, the company reported consolidated total income of 24.2 billion, down 1.6% from the previous quarter. It reported the loss of 200 m as compared to the gain of 1.3 billion in the same quarter last year.

The December quarter results were impacted by higher commodity prices and reduced demand for replacement tyres from transporters.

However, the company has given a decent profit growth of 25% in the last three years. In addition, it is maintaining a healthy dividend payout of 19%.

As per the comments of the Management, it has been decided to postpone 7 BN Phase-1 Truck Bus Radial (TBR) Capacity Extension by 12 Months and Balance 5 billion of the Phase-II expansion has been postponed indefinitely due to market conditions and revised development plans.

The company is revising some of its capital expenditure programmes. It aims to grow the business in three segments – two wheeler, passenger car, and off highway (OHT) tire segment.

Moreover, in the two wheeler (2W) segment, where it claims a market share of around 30%, the company has also achieved a leadership position in the electric two wheeler segment with around 60% market share. It’s working with all major Electric two wheeler manufacturer.

How to deal with market correction?

One of the lessons the financial markets have taught us is that only ‘change’ is guaranteed.

Just a few weeks ago, the stock markets were riding high, breaking record after record. Whereas today the whole situation is completely different.

In such volatile times, the editors of Equitymaster agree on one thing…

Do not panic! The market will come out of this phase more strongly. Stay on long term investment.

Finally, remember that volatility is likely to continue… so in this situation, don’t make hasty decisions and sell all your holdings.

If you sell all your holdings in the event of a market downturn, you may miss your chance to accumulate more. it will apply the brake compounding processIt is considered to be the eighth wonder of the world.

Happy investment!

Disclaimer:This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated from equitymaster.com