Over the recent months, inflation has dropped. Given the robust US job market, the Euro region’s resiliency, and the global supply chain index’s pre-pandemic levels, analysts at Yes Securities feel this is more a result of supply restoration than demand destruction. This is a reassuring indication that rate hikes will shortly come to an end, which gives us confidence. 20 out of the 23 corporations studied by Bloomberg may lower rates in 2024, indicating that the cycle of rate increases in India has undoubtedly ended.
Foreign Portfolio Investment (FPI) funds will be directed to Indian shores by stable rates, a strong rupee, and weak investment opportunities in China. Yes Securities analysts have an optimistic outlook for the Sensex due to a number of encouraging factors, including sustained government capital spending, continued private consumption supported by high credit demand, healthy growth in corporate profitability on increased margins driven by reducing input prices, and record-breaking bank results.
Analysts of Yes Securities have embarked on a new upcycle for large caps and mid caps. According to the analysts, they will outperform the broader market in the next couple of years.
Based on the strong fundamental Amar Ambani, Head of Institutional Equities at Yes Securities, has recommended top five large cap and mid cap stocks to purchase in August. Here’s the list;
Large Cap
Bharti Airtel – According to Amar, Bhart Airtel is witnessing sustained growth in customer base and we believe margins will improve as the management has a razor-sharp focus on improving their average revenue per user (ARPU’s) and their return on capital employed (ROCE) metrics. The demand of data and connectivity solutions are increasing and with adoption of technology it is poised to grow even further for a sustainable future.
HDFC Bank – HDFC Bank is aggressively increasing its branch presence by adding 1500 branches per year. Commercial and rural banking business is the highest Return on assets (RoA) business of the bank and asset growth in this category is healthy at about 30%. The bank is moving away from old IT architecture and gearing up for larger volumes. After the merger with HDFC Ltd, the bank intends to cross sell all products to all group customers, according to Amar.
Infosys – IT is facing some near-term demand weakness, however, long-term demand for IT services remains intact. IT services companies should see a good bounce-back once the macro environment stabilizes, according to Amar.
Axis Bank – According to Ambani, Axis bank is investing into tech, people and phygital distribution to grow sustainably going forward. Change in book composition, adequate liquidity, and drawdown in RIDF to support and improve their margins from hereon, it is also becoming more retail centric with a healthy provision buffer along with reasonable valuations make it a right candidate for re-rating.
Tata Steel – Tata Steel is one of the largest integrated global steel manufacturers due to its backward integration, thereby also making it one of the lowest cost producers. Tata steel has significantly repaid its debt and is better positioned than its peers. We expect the steel prices to have bottomed out and simultaneously costs to come down there by benefiting steel companies going forward, said Amar.
Mid Caps
Federal Bank – Federal Bank recently raised capital in the form of QIP and Preferential issue, thereby providing it capital for growth. With India on the cusp of a Capex cycle, credit growth is expected to be strong and Federal bank is well positioned to capitalize on this upcoming opportunity. It expects the yields on advances to expand and cost of deposits to inch lower, which is support its margins, according to Amar.
Tata Power – Tata Power continues to steadily move towards its long-term aspiration built on businesses of the future, according to Ambani. This is clearly visible from the improvement seen in the operational and financial metrics in each passing quarter. The company’s performance will improve as with rapidly growing generation capacity at its disposal, and a strengthened focus on EV and renewables businesses.
Engineers India – EIL provides engineering consultancy and EPC services focused on the oil & gas and petrochemical industries. The consultancy segment has a margin of 20% and EPC business has a 2-3% margin, but it is working to increase EPC margins. The company is shifting its focus from being a purely domestic company to overseas companies and is also focusing on infrastructure projects.
Coforge – Coforge continues to focus robust execution for driving consistent performance even as the near-term demand environment remains challenging. In spite of clients being cautious there has been no deal cancellation for Coforge so far and its deal pipeline remains steady. The company aims to drive around 50bps improvement in gross margin for FY24 through optimization of employee cost.
Balkrishna Ind – Balkrishna Ind operates in an industry with huge entry barriers as it requires large numbers of SKUs which can’t be built overnight. Channel inventory is gradually coming off, at the same time end user demand is holding up. Management expects the scenario to normalize and a recovery to be visible in 2HFY24. The full benefit of lower RM cost should also be visible in 2HFY24E which shall aid improve margins, according to Ambani.
Also Read: FTSE to increase HDFC Bank’s weightage in its indices in 3 tranches
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Updated: 08 Aug 2023, 02:14 PM IST