Largecap Stocks: 3 Banks, ITC, Maruti, Varun Beverages Attractive To Invest In November; 11-33% Upside Seen

Factoring in the prevailing scenario of higher bond yields, rising crude prices, and the stronger dollar index, large-caps appear to provide more margin of safety at current valuations than midcaps and smallcap, said Axis Securities in its report for top picks in November 2023. Thereby, the brokerage has selected six large-cap stocks from diverse segments like banking, auto, and FMCG as attractive investments for the current month.

These six stocks are ICICI Bank, SBI, Bank of Baroda, Maruti Suzuki, ITC, and Varun Beverages respectively.

Axis Securities note said, "With strong catch-up by Midcaps and Smallcaps in the last couple of months, we believe their margin of safety at current levels has reduced in certain pockets as compared to that available in Largecaps. Keeping this in view, the broader market may see some 'time-correction' in the near term and the flows will likely shift to Largecaps."

Further, it added, "The long-term story of the broader market continues to remain attractive. On top of it, 'Growth at a Reasonable Price' looks attractive at the current juncture on account of domestic play, cool-off in commodity prices and inflation, and expectation of rural recovery in the upcoming quarters."

Here's what Axis Securities highlighted for its top large-cap picks for November 2023:

1. ICICI Bank: (TP: Rs 1,250: Potential Upside: 32.2%, Market Price: Rs 945.25 (November 6th))

The bank has been consistently outperforming its peers and has been firing on all cylinders.

Axis Securities note said, "We continue to like ICICIB for its (1) Strong retail-focused liability franchise, (2) Buoyant growth prospects, (3) Stable asset quality along with healthy provision cover, (4) Adequate capitalization, and (5) Potential to deliver robust return ratios. We maintain our BUY rating on the stock with a target price of Rs 1,250/share (SOTP basis core book at 3x FY25E and Rs 157 Subsidiary value)."

2. Maruti Suzuki: (TP: Rs 11,800, Potential Upside: 15%, Market Price: Rs 10,281.65)

MSIL has completely refreshed its portfolio and a higher share of premium MPV/SUVs in the sales mix will drive the Revenue/EBITDA/PAT growth in FY23-26E. Strong order book, higher share of premium SUVs, and CNG vehicles in the sales mix to improve ASP in FY24/25; further improved chip supplies and stable commodity prices to drive Revenue/EBITDA/PAT CAGR of 14%/20%/19% from FY23-26E.

"We maintain our BUY rating on the stock and value it at 27xP/E of its Sep'25E EPS (from 28x) to arrive at our TP of Rs 11,800/share (unchanged)," it said.

3. State Bank Of India (SBI): (TP: Rs 715, Potential Upside: 24.5%, Market Price: Rs 574.4)

The management is confident in maintaining margins at current levels, with CoF gradually stabilizing and healthy credit growth sustaining. The bank is looking at expanding physically (physical plus digital). In terms of physical branches, the bank has planned to add 300 branches in FY24. Opex ratios are expected to remain at elevated levels with the bank recording provision for wage revision. However, the focus remains on improving the C-I Ratio aided by improving productivity, digital sourcing, and increasing income. Thus, Axis Securities believes, the bank is well-placed to deliver RoA of 1+% over FY24-25E.

Among PSU banks, Axis Securities note said, "SBI remains the best play on the gradual recovery of the Indian economy on account of its healthy PCR, robust capitalization, strong liability franchise, and improved asset quality outlook. We believe despite the margin pressures, SBIN remains well poised to deliver RoA/RoE of 1%/15-17% over FY24-25E supported by stable credit costs and steady cost ratios. We maintain our BUY rating on the stock with a target price of Rs 715/share (core book at 1.3x Sep'24E and subsidiaries at Rs 164/share)."

4. Varun Beverages: (TP: Rs 1,050, Potential Upside: 11%, Market Price: Rs 945.1)

Axis Securities believes VBL is expected to continue its strong growth momentum on account of 1) the Normalcy of operation and market share gains of newly acquired territories post-COVID-19 disruptions, 2) The management's continued focus on the efficient go-to-market execution in acquired and underpenetrated territories as reflected in its recently commissioned Bihar plant operations (it has started gaining market share), 3) Expansion in its distribution reach to 3.5 Mn outlets in CY23 from 3 Mn currently, 4) Focus on expanding high-margin Sting energy drink across outlets coupled with increased focus on expansion of Value Added Dairy, sports drink (Gatorade) and Juice segment and 5) Robust growth in the International geographies.

5. Bank Of Baroda: (TP: 225, Potential Upside: 15%, Market Price: Rs 195.55)

With a focus on expanding its retail portfolio and provision for wage revision, Opex ratios are expected to remain at current levels. Asset quality is expected to remain healthy with a slight moderation in credit cost as compared to FY23. Moreover, the SMA 1 and SMA 2 have stayed below 0.5% indicating no incremental stress in asset quality in the near term. Thus, credit cost is expected to be contained well below 1% in FY24. This would be the key lever for ROA sustainability.

Presently, the banking industry is in its best phase in terms of asset quality and the brokerage expects it to remain strong over the medium term. Furthermore, with key levers of growth remaining intact, the brokerage is confident that BoB would sustain its RoA at 1%+ over FY24-25E. It added, " With strong advances growth, stable margins, healthy NII, asset quality under control and adequate capital, we believe the bank is well-positioned to deliver a sustainable RoA of 1% going forward. We believe current valuations of 0.9x FY25E ABV are attractive and believe BoB is ripe for re-rating, especially given its growth potential. We value BoB at 1.1x FY25E ABV to arrive at a target price of Rs 255/share."

6. ITC: (TP: Rs 540, Potential Upside: 24%, Market Price: Rs 435.15)

Axis Securities believes the narrative around the ITC is getting stronger as all its businesses are on the right track - 1) Stable cigarette volume growth led by market share gains and new product launches; 2) FMCG business reaching the inflexion point as its EBIT margins expected to inch up further and would be driven by - the ramp up in the outlet coverage, effective implementation of localisation strategy, driving premiumisation, leveraging technology on demand and supply side; and moderation of raw material input cost; 3) Strong and stable growth in hotels as travel, wedding, and corporate activities pick up; 4) Stedy and decent performance in paperboard and agribusiness witnessed in the last few quarters.

Moreover, reasonable valuation among the entire FMCG pack provides a huge margin of safety.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.