What to buy in this market? Stocks showing green shoots & the ones that are evergreen

The Indian equity market is giving an illusion of strength, as select buying in heavyweight stocks has kept the benchmark indices higher while most of the midcaps and smallcaps continue to be down in the dumps.

But analysts see some opportunities after the recent selloff. “The Nifty50 stands at 11,000, optically giving an impression that the market is near its high. On closer inspection, the price correction at stock level across largecaps, midcaps and smallcaps looks intense, providing a wide swathe of ideas for fresh capital deployment,” Centrum Broking said in a report.

BSE Sensex is down 5 per cent since August-end last year, while BSE Midcap and Smallcap indices are down 16 per cent and 22 per cent, respectively.


Centrum Broking says there are two categories of stocks investors can look at, green shoots and evergreen.

THEME	GREEN SHOOTS	EVERGREEN
Agri & Allied	Godrej Agrovet	-
Auto & Auto Anciliary	Varroc Engineering	Maruti Suzuki
Building Material	Cera Sanitaryware -	Kansai Nerolac Pidilite Industries
Consumption	- - -	ITC Nestle Page Industries
Financials	Can Fin HDFC AMC ICICI Securities	HDFC Bank RBL Bank -
Healthcare	Thyrocare	-
Infrastructure	KEC International KNR Construction	Larsen & Toubro _
IT/Automation	Tata Elxsi	Tech Mahindra

(Source: Centrum Broking)

Green shoots are the companies with growth potential but have faced headwinds and consequently got beaten down in price terms. In a nutshell, these are good companies facing bad market conditions, Centrum said.

The brokerage placed Godrej Agrovet, Varroc Engineering, Cera Sanitaryware, CanFin Homes, HDFC AMC, ICICI Securities, Thyrocare, KEC International, KNR Construction and Tata Elxsi in this category.

On the other hand, the brokerage categorised Maruti Suzuki, Kansai Nerolac, Pidilite Industries, ITC, Nestle, Page Industries, HDFC Life, RBL Bank, Larsen & Toubro and Tech Mahindra as evergreen stocks, ones that are stable themes with the wherewithal and staying power.

“This compilation is suitable for investors looking for frontline stock ideas with solid businesses and proven corporate governance standards,” Centrum said.

The brokerage said these stocks can be considered for accumulation in 3-4 tranches, as the market is navigating near-term variables. One can consider these stocks with a 3-4 years kind of horizon to take advantage of the themes unfolding, such as economic revival and recovery in valuations.

In the midcap and smallcap segments, companies like Ashapura Intimates, Rolta India, Punj Lloyd, Infibeam Avenues, Dewan Housing Finance Corporation, Shankara Building Projects, Kwality, Reliance Infra, Reliance Capital, Reliance Power, Reliance Communications and Unitech have cracked between 70 per cent and 97 per cent since August-end last year.

G Chokkalingam, Founder, Equinomics Research and Advisory said companies with strong managements, minimum leverage, least working capital stress and valuation comfort would definitely make a strong comeback from the midcap and smallcap segments.

However, wealth destruction will be permanent in companies missing the above features. “We are bullish on Andhra Sugar, Karnataka Bank, Bombay Burmah and MRF,” Chokkalingam said, adding that has investments in some of these names.

On the other hand, stocks like Dhampur Sugar Mills, IOL Chemicals & Pharmaceuticals, Hathway Cable & Datacom, Praj Industries and Gala Global Dalmia Bharat have rallied between 50 per cent and 96 per cent between August 31 and February 11.

Global brokerage firm Morgan Stanley says it is time for investors to start looking at stocks in the broader market given the damage they have suffered.

Indraprastha Gas, Indian Hotels, Cyient, Ipca Lab, Just Dial, Amara Raja, Edelweiss Financial, Jubilant Food Works, Oberoi Realty and Prestige Estates are among Morgan Stanley’s top midcap ideas.