Case for Bulls.
The recent Capitulation in the market, during the month September, and early October, gives a sense of worst getting priced in. From the Union Budget of 2019 in July 2019, Fiis have been sellers and despite positive announcements by the Government in the last month, their selling continued, mainly due to weak fundamentals, and Banking and NBFC’s woes. Markets have thus far ignored the spate of positive announcements, made by the Government of the day. The stupendous rally after the historic tax cut announcements fizzled out very fast.
We believe the initial frenzy post tax cut announcements was due to massive short covering, and the subsequent correction in indices and stocks to sub 11200 levels during the week, gives immense opportunity to buy a mix of quality stocks across sectors and market caps, at very reasonable valuations. While valuations in the broader markets are now reasonable, more is expected to come from the Government on reforms. On a regular basis, some impetus measure is being announced, like increase in dearness allowances for Government employees, PSUs having repaid almost Rs 60000/- crores to their creditors and more to be paid going ahead. For Indian equities, macros are reasonably in place with
(1) Inflation being benign,
(2) Yields well below 7% with a downward trajectory headed near to or below 6% and
(3) Brent crude well below 60 USD and on a downward trajectory.
Sector-wise, we remain very constructive on the Pharma space. Nearly all of the bad news is now out, and earnings visibility is returning as seen in the Q1FY’20 results, led by domestic growth, for names like Aurobindo Phama, Sun Pharma and a few others as well. Private Banks like ICICI, Axis and HDFC, continue to remain favourites in the BFSI space. Consumption names like Marico, United Spirits have been very resilient, and will continue their upward trajectory.
Below are our 10 stock picks for Diwali :
Traditionally it is customary to give Diwali picks, and this time around with attractive valuations we can stick our neck out and list many investment ideas as below, across sectors, and market caps.
Sun Pharma Ltd : Target Price 540 For duration is 6-12 months.
United Spirits Ltd : Target Price 800 For duration is 6-12 months.
Aurobindo Pharma Ltd : Target Price 660 For duration is 6-12 months.
Rites Ltd : Target Price 400 For duration is 6-12 months.
Century Plywood Ltd : Target Price 290 For duration is 6-12 months.
GNFC Ltd : Target Price 270 For duration is 6-12 months.
India Cement Ltd : Target Price 140 For duration is 6-12 months.
VIP Ind Ltd : Target Price 600 For duration is 6-12 months.
Amber Ent Ltd : Target Price 1170 For duration is 6-12 months.
Federal Bank Ltd : Target Price 109 For duration is 6-12 months.
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