Equity markets posted sturdy gains in Feb 2021 driven by a pro-development and capex-driven Budget, positive worldwide cues, US stimulus and rebound in GDP information. There was some promoting in the latter component of the month due to increasing worldwide bond yield, commodity costs (like crude) and increasing coronavirus instances in India.
Overall, Nifty gained 6.6% MoM in Feb’21, crossing the 15k mark for the very first time. The broader industry continued to outperform with Nifty Midcap one hundred / Smallcap one hundred indices up 11.3% / 12.2%, respectively.
FII inflows had been robust at Rs 21,960 crore (like major industry activity). DII net sold Rs 11,970 crore sharply down from Rs 37,300 crore in Dec’20 and Rs 48,340 crore in Nov’20.
The Indian economy came out of a technical recession in 3QFY21 with Real GDP expanding .4% YoY, up sharply from -24.4% in Q1 and -7.3% in Q2. Festive season demand, coupled with the reopening of the economy, facilitated this recovery. Even the PMI Services information expanded for the fifth straight month whilst the manufacturing PMI information was steady. The GST collections as well crossed the Rs 1 lakh crore mark for the fifth month in a row in February. However, worldwide 10-year bond yields have risen sharply in Feb’21 on the back of rise in inflation expectations. Bond yields in India as well are up about 33bps in the month of February. This has led to enormous volatility in the industry.
The government’s concentrate on fiscal expansion and capex spending augurs properly for the revival of the extended-anticipated private investment cycle. Nifty is witnessing rotation from higher PE stocks to cyclical/worth plays in Feb’21. Metals, Cement, Oil & Gas, PSUs outperformed Consumer, Private Financials in the Nifty. Metals may well be most effective positioned for worldwide reflationary rally and rise in bond yields. PSUs outperformed in month of Feb’21 and saw significant gains post Union Budget announcement on privatization.
While the extended-term structure of the industry continues to stay positive, it may well face some hurdles in the close to term due to issues more than the bond yields, commodity costs and danger of improve in inflation. Even Nifty valuation at ~21x FY22 EPS is not economical and demands constant delivery of earnings. Rising bond yields may well cap equity valuations as the RBI may well have to do a fine balancing act to retain bond yields at reduced levels whilst managing the government’s borrowing system. Thus, provided the likelihood of higher volatility continuing in the industry for some time, investors would do properly by accumulating very good good quality firms on declines in the industry.
1. ICICI Bank, CMP-625 TP-700
- ICICIBC reported a sturdy 3QFY21, led by robust operating overall performance, whilst sturdy asset good quality trends enabled decline in provisioning costs. Loan development is displaying a sturdy revival in each Wholesale and Retail, with disbursement in numerous enterprise segments surpassing pre-COVID levels. Asset good quality remains beneath handle.
- Provision coverage remains most effective in the market and the bank holds added unutilized COVID provisions of INR64.7b. Liability franchise continues to increase with price of deposits declining to 4%, whilst the Balance Sheet remains pretty liquid and as a result conducive for development.
- We count on RoA/RoE to increase to 1.8%/15.2% for FY23E. Maintain Buy.
2. Infosys, CMP-1346 TP-1600
- Information should really be a essential beneficiary of a recovery in IT spends in FY22, provided its capabilities about Cloud and Digital transformation.
- Leading operational overall performance in 9MFY21 and sturdy deal wins should really translate into sturdy outperformance in EPS development (v/s the sector).
- We upgrade our FY21E/FY22E/FY23E EPS estimate by 1%/3%/7% as we adjust our income and EBIT margin trajectory to incorporate a sturdy deal atmosphere.
- Based our revised estimates, the stock is at the moment trading at 21x FY23E EPS. Reiterate Buy.
3. ACC, CMP-1828 TP-2100
- ACC is going ahead with its announced Central India expansion, with guided commissioning of Jun’22, which provides volume development visibility beyond CY22.
- We count on charges to remain beneath handle, supported by a master provide agreement with Ambuja as properly as provide chain efficiencies. ACC trades at a 35–60% valuation discount to peers Shree, UltraTech, and Ramco.
- We think such a huge discount is excessive as: (a) ACC has arrested its industry share losses considering that CY17, (b) price is anticipated to remain beneath handle, aided by savings in logistic charges, and (c) with planned expansions, the proportion of inefficient assets would decline, enhancing profitability. Maintain Acquire.
4. L&T, CMP-1508 TP-1625
- L&T’s consolidated adjusted. PAT grew 5% YoY to INR22.6b, 42% above our expectation. Order inflows remained robust with 76% YoY development through 3QFY21, thanks to huge orders like the High Speed Rail.
- Strong order inflows make up for minor miss on core E&C overall performance. L&T has rightly prioritized Balance Sheet strength more than development through the present COVID-19 crisis.
- The outlook appears pretty encouraging, with probably FY21E exit at a record higher order book, robust Balance Sheet, enhancing government financials, and impetus on Infrastructure improvement as a tool to lift extended-term financial development in India. Maintain Acquire.
5. Tata Consumer Products, CMP-612 TP-680
- TCP has two sturdy legs in the India enterprise – Tata Tea and Tata Salt – by which it is targeting reduced double-digit development, driven by cross-promoting among Tata Chemicals and TCP’s distribution channels and expansion into new geographies.
- TCP is constructing its third leg – Tata Sampann, which should really develop in higher double digits and bargains in Pulses and Spices.
- Maintain Buy.
6. SBI, CMP-388 TP-475
- SBIN reported robust operating overall performance in a difficult atmosphere. Loan development is displaying healthful recovery in retail portfolio, with disbursements in numerous enterprise segments surpassing pre-COVID levels.
- Deposit development stood sturdy, whilst margin remains broadly steady. Asset good quality outlook remains encouraging, with controlled slippages, low restructuring levels. SBIN has prudently enhanced PCR (~68% of pro forma coverage).
- The bank is properly on track to retain credit price beneath handle, whilst recoveries from resolution of huge accounts can additional help earnings. We project RoA/RoE of .8%/14.5% by FY23E. Maintain Buy.
7. Voltas, CMP-1041 TP-1125
- Voltas’s 3QFY21 earnings had been 31% far better than our expectation, led by far better than-anticipated execution in the EMP segment, sturdy volume development in the UCP segment, with ongoing price rationalization top to greater margin.
- It has retained its numero uno position in Inverter Air Conditioners/Room Air Conditioners (RAC) with a industry share of 21.8%/26% in Dec’20. Valuations are anticipated to stay elevated going into the summer time season, with higher expectations as properly as probably announcement of a detailed PLI scheme for the AC market.
- We improve our FY21E/FY22E/FY23E EPS estimate by 5%/11%/15% owing to the sturdy overall performance in 3QFY21.
8. IOC, CMP-101 TP-142
- IOCL is probably to advantage from the petchem spread which is at the moment at multi-year highs.
- Among the OMCs, we reiterate IOCL as our major choose, on the back of a diversified EBITDA mix (Marketing: 43%, Refining: 23%, other folks: 34% in FY19) – with the most effective absolutely free money flow generation profile going forward.
- Better advertising and petchem margins, along with reduced refining opex resulted in a beat on EBITDA. Maintain Acquire.
9. Sun Pharma, CMP-613 TP-740
- SUN Pharma delivered greater-than-anticipated profitability on: a) far better traction in Specialty portfolio/US Generics, and b) extended advantage of reduced opex.
- We raise our FY21E/FY22E/FY23E earnings estimate by 9%/7%/7%, factoring in: a) gains from advertising in the Specialty portfolio, b) industry share acquire/using shortage possibilities in US Generics, and c) controlled operational price due to uncertainties associated to COVID-19.
- We stay positive due to: a) superior execution in the Specialty portfolio, b) sturdy ANDA pipeline, and c) outperformance in the Branded Generics segment. Maintain Buy.
10. M&M, CMP-852 TP-1040
- Mahindra & Mahindra’s 3QFY21 overall performance was driven by very good overall performance in each the Tractors and Autos corporations.
- Furthermore, it has guided for an virtually 90% reduction in international subsidiary losses in FY22E, driven by the completion of phase-1 of the capital allocation physical exercise.
- MM has twin levers of core enterprise recovery as properly as positive aspects of tightening capital allocation for EPS development and re-rating.
- We upgrade FY21/FY22E EPS by 14%/20% to reflect volume upgrade in Tractors & Autos, tighter price handle, reduced depreciation, and greater other revenue. Maintain Buy.
(By Motilal Oswal Financial Services)
Disclaimer: These stock suggestions have been created by Motilal Oswal Financial Services. Readers are advised to seek advice from their monetary planner ahead of producing any investment.