What to buy now amongst large-caps
Indian markets have corrected 10.5% since the beginning of 2011 underperforming MSCI Emerging Markets by 9%. While worries on corruption and multiple scams led the downtick in Dec-10, January has been marred by worries on inflation and its impact on growth/consumption. While these worries could keep markets weak near-term, we remain strong believers in India's consumption story and expect growth to surprise on the upside especially in wake of current skepticism.
Running through our coverage universe, we have selected 5 large-cap liquid stocks that we believe are now attractive BUYs given the share price fall. While we do have a broader top pick list, we would look at these five at current share prices as our top picks - —Bharti, Axis Bank, L&T, Tata Motors, and Tata Steel.
Running through our coverage universe, we have selected 5 large-cap liquid stocks that we believe are now attractive BUYs given the share price fall. While we do have a broader top pick list, we would look at these five at current share prices as our top picks - —Bharti, Axis Bank, L&T, Tata Motors, and Tata Steel.
Strategy Picks for 2011
| Stock | CMP | Target Price | Upside | Mkt Cap (Rsbn) | FY12 PE | FY12 PB | FY12 RoE (%) | FY12 EPS Growth (%) | Comments |
| Axis Bank | 1254 | 1800 | 44 | 514 | 12.1 | 2.3 | 19.1 | 28 | ▪ CAGR of 26% through FY13 driven by advances CAGR of 24%. ▪ Well-placed to maintain NIMs with strong liability franchise (40%+ CASA). ▪ Improving asset quality—slippages came off significantly to 1.4% in Q3FY11 from 1.9% in H1FY11. ▪ Strong fee income growth. |
| Bharti Airtel | 327 | 400 | 22 | 1243 | 14.4 | 2.2 | 15.1 | 23 | ▪ To benefit most from moderating competitive intensity and stabilizing ARPMs, strong cash-flow generation on the domestic front, and any potential resolution on current regulatory overhang. Africa upside (~25%) not factored in the price yet. |
| L&T | 1607 | 2330 | 45 | 977 | 17.8 | 4.4 | 24.7 | 23 | ▪ Best-placed to benefit from a rebound in the investment climate, esp. in power, infrastructure, and hydrocarbons, despite recent muted guidance on order-inflows. ▪ Value-unlocking on account of listing of some of its subsidiaries (financial services, IDPL) to be accretive. ▪ E&C segment to drive growth going ahead with order backlog of Rs1.1trn |
| Tata Motors | 1150 | 1450 | 26 | 683 | 7.6 | 2.4 | 32.1 | 12 | ▪ A play on the revival of the global luxury car market even as its domestic business continues to be driven by well-performing CV business ▪ Efforts towards deleveraging should be positive for cash-flow generation |
| Tata Steel | 637 | 850 | 33 | 575 | 8.8 | 1.6 | 17.9 | 73 | ▪ Expanding capacities, better visibility on raw material linkages, global recovery resulting into higher operating rates and realizations and margin expansion from cost reduction programs ▪ Firming up of global commodity prices on account of global recovery and liquidity sloshing around |
Inputs by Mr. Tirthankar Patnaik (EVP- Institutional Sales, Religare Capital Markets Limited) and Mr. Manoj Singla (MD & Co-Head, Religare Capital Markets Limited)
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