Stocks to buy: 120-165% rally not enough for these 7 Nifty stocks: Analysts say ‘Yeh Dil Maange More’

NEW DELHI: Top seven Nifty50 performers since March-April lows have rallied 120-165 per cent, and all of them barring one now trade above their 200-day moving average, signalling pricey valuation.

Yet, analysts are not look too worried about valuations. Or that’s what the stock recommendations imply.

Among three stocks that gained over 150 per cent from the March-April lows, IndusInd Bank has soared 164.2 per cent to Rs 622.45 from Rs 235.60 on March 24. It still trades below its 200-day moving average of Rs 727.90 level.

Auto maker M&M has rallied 155 per cent over the same period from Rs 245 on March 25 to Rs 627 level now. RIL has rallied 154 per cent to Rs 2,210.15 from Rs 867.45 on March 23. These two stocks are trading above their 200-day moving averages.

IndusInd had 19 ‘buy’ and nine ‘outperform’ calls on the publicly-available Reuters Eikon database as of Thursday, compared to three ‘sell’ and four ‘underperform’ recommendations.

M&M had 12 ‘buy’, 19 ‘outperform’ and two ‘sell’ and one ‘underperform’ calls. Same was the case with RIL, which had 15 ‘buy’ and 9 ‘outperform’ calls against just one ‘sell’ rating.

Tata Motors, HCL Tech, Cipla and JSW Steel are four other stocks that are up 119-127 per cent from their March 19-April 3 lows. Among these, HCL had 21 ‘buy’ and 16 ‘outperform’ calls but no ‘sell’ rating.

Cipla also had nil ‘sell’ call, but 15 ‘buy’ and 14 ‘outperform’ ratings. Tata Motors had 7 ‘buys’ against 3 ‘sell’ calls. It has 8 ‘hold’ and 9 ‘outperform’ ratings. In the case of JSW Steel, brokerage count with ‘hold’, ‘underperform’ and ‘sell’ ratings stood at 14 against 15 ‘buy’ and ‘outperform’ ratings.

What lies ahead

Morgan Stanley said while asset monetisation may continue at Reliance Industries, capital allocation, recovery in energy margins and execution on retail will be key drivers of the stock performance.

Tractor make M&M reported 17 per cent YoY sales growth in September compared with an industry average of 15 per cent for the same month. Nomura India said M&M is its top pick on the rural theme due to various initiatives to address capital allocation concerns and also attractive valuation.

In case of IndusInd Bank, Nirmal Bang said the key tasks before the new MD and CEO would be to de-focus on bulk deposits and granularise liabilities. It said a sound execution on the business strategy front as communicated by the management could lead to a re-rating of the stock in the medium term.

On Tata Motors, HDFC Securities said the company enjoys immense financial flexibility by virtue of being part of the Tata Group and it has strong backing from promoter Tata Sons. It expects losses at the company to narrow gradually due to higher volumes, cost-cutting initiatives and better operating leverage.

“Globally, governments are willing to provide direct/indirect support to the automobile sector, which will benefit JLR. TML is also looking for strategic partners for JLR. Significant developments on these fronts could be a potential trigger for the stock,” it said.

HCL Tech has a better services mix and multiple long-term contracts spread across verticals, said Axis Securities. The brokerage said rupee depreciation, lower travel cost and strong execution would drive the company’s Ebitda margins in near term. The brokerage has a ‘buy’ rating on the stock.

Cipla is among the pharma companies that are expected to report strong September quarter earnings due to its Covid-19 portfolio.

“Domestic sales would grow 8 per cent YoY, partly benefitting from remdesivir and actemra sales. US revenue at $130 million is expected to decline 4 per cent QoQ, as moderation of shortage opportunities in the US to offset market share gain in gProventil. We estimate Ebitda margin to improve 100bps YoY to 21.7 per cent driven by Covid-19 led cost savings,” Edelweiss said. It has Cipla among its top pharma picks.

Edelweiss is also positive on JSW Steel as demand for domestic ferrous space improves and prices remain firm. “Our channel checks suggest domestic steel mills are eyeing another price hike in October. A resurgence in domestic automotive demand has surprised Dalal Street, and JSW Steel and Tata Steel would benefit disproportionately in our view,” it said.

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