Diwali Stock Picks: 2 Banks, 3 Defence Stocks Are Attractive To Buy; HAL, L&T, Bank Of India In List

The Samvat 2079 is nearing its end in less than a month, and as the country is about to step into Samvat 2080, brokerage Sharekhan has announced Diwali stock picks. The brokerage believes that the equity market outlook looks promising. Accordingly, Sharekhan finds two banking and three defence stocks attractive to buy. These are -- Bank of India, IndusInd Bank, Bharat Forge, Larsen & Toubro and Hindustan Aeronautics.

Sharekhan said, "Investors should view the current market weaknesses as valuable buying opportunities for constructing a top-tier portfolio aimed at riding the multi-year economic upcycle in India and use the opportunity for wealth creation over the next few years."

Diwali festival will kick start on November 10 and will continue till November 14, 2023. There will also be a one-hour auspicious Muhurat Trading held on November 12 on the day of Laxmi Pujan.

Here are the five Diwali stock picks of Sharekhan:

Banking stocks to buy in Diwali 2023:

1. Bank Of India Share Price:

Given a strong asset quality outlook, RoA would inch up closer to ~ 1% on lower credit cost and improved core PPoP. Loan growth momentum is also expected to pick up, led by a resurgence in MSMEs and corporate credit growth for 9MFY24, while the retail segment continues to perform well.

Sharekhan believes valuations are expected to inch higher as the return ratio improves in the coming quarters on the back of uptick in loan growth, stable margins, further lower credit cost. At CMP, the stock trades at 0.7x/0.6x its FY24E/25E BV estimates.

2. IndusInd Bank Share Price:

The brokerage believes that IndusInd Bank has come out of a tough cycle. Focus on granular growth and building of a strong internal risk framework is a right strategy. Near-term business trends look comfortable for the bank and the franchise is looking towards a more predictable performance.

It added, strong loan growth momentum and lower credit cost are likely to support earnings growth, and this should keep RoEs at ~15% in the near term.

On the valuation, the brokerage said, "Stock trades at 1.7x/1.5x its BV estimates for FY2024E/FY2025E vs. average RoA trajectory expected at ~1.9% over the next two years. We believe re-rating is expected given sustained earnings progression and strengthening of liability franchise."

Defence stocks that are Diwali picks:

1. Bharat Forge Share Price:

The company has received license for small arms business in India is a play on the global defence segment supported by robust order book. Further, the company is expecting order inflow from domestic defence segment, which Sharekhan believes would be a potential multiplier.

It said, "A well-diversified, de-risked business model and a best fit play on global auto as well as non-automotive engineering. Robust order book with sustainable high margin would converge into sustenance of high valuation and the re-rating is expected to continue in our view, given engineering companies demand a premium valuation in market."

2. Hindustan Aeronautics Share Price:

HAL is a state-owned aerospace and defence company headquartered in Bengaluru, India. Established in December 1940, HAL is one of the oldest and largest aerospace and defence manufacturers in the world today. HAL was conferred Navratna status in 2007.

Sharekhan is bullish on HAL's growth trajectory as it is one of the key beneficiaries of structural reforms in the defence sector. The company's impending deal with GE and potential export tie-up with countries like Argentina can provide strong long-term growth opportunities.

Currently, the company guided for order inflows of Rs. 48,000 crore. Additionally, the company is expected to get R&O orders of ~Rs. 18,000 crore p.a. There are a few more orders wherein RFPs are likely to be floated and cost of these orders is expected to be ~Rs. 36,000 crore.

All of this means that HAL has healthy order book having more than three years of revenue visibility.

Sharekhan said, "Once execution of large orders like LCA (Mk1A) pick up pace, the company could post double-digit revenue growth from FY2025E onwards, and it should stabilize at 14-15% sales growth from FY2026 onwards."

3. Larsen & Toubro (L&T) Share Price:

L&T remains at the forefront to reap benefits from the AtmaNirbhar Bharat scheme with its diversified businesses across sectors such as defence, infrastructure, heavy engineering and IT and is the best proxy for domestic capex, the brokerage said.

Apart from this, the company's order book stands at an all-time high of ~Rs 4.1 lakh crore (2.1xTTM revenue). L&T has 12-15% revenue and 10-12% order intake growth guidance for FY24. Core business OPM is expected to be at ~9% (up 40/50bps y-o-y). Working capital/sales to be at 16-18%.

Also, as per the brokerage, L&T sees ample opportunities in the middle east region in hydrocarbon and renewables. The capex is large in this region and therefore all players would get a fair share of the pie. The company expects 19,000-20,000 crore of orders to be awarded in the defence segment in the near to medium term.

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.