2020 has been a dramatic year even for the stock markets. From the sharp drop seen in March amid the peak of the COVID-19 panic, stocks have recovered gradually causing benchmark indices to hit new all-time highs as the year comes to an end.
Moreover, for the first time since 2017, the rally has been seen across the spectrum. Unlike 2019, where only large caps were climbing, the surge in valuations has been seen in small and mid-caps as well this year.
Many broad market indexes already surpassing pre-pandemic highs in 2020, however, analysts at HDFC Securities think are still opportunities in catch-up plays and as well as structural winners.
Here are the brokerage's top stock picks for 2021:
1. Hindustan Unilever
HUL is debt-free and cash-rich after recent acquisitions of GSK's consumer business. HDFC Securities expects substantial synergy benefits to play out in the next 2-3 years.
The brokerage believes that while the stock price has remained muted, earnings may surprise on the upside, and the stock could get rerated gradually.
Hindustan Petroleum plans to invest more than Rs 60,000 crore in its infrastructural development and project expansion. HDFC Securities believes that any development on divestment front for BPCL could lead to a rub-on effect on HPCL's valuations.
Infosys announced large deal wins with a total contract value of $ 3.15 billion in the September-ended quarter, which is the highest ever recorded. The brokerage pointed out that the IT deal pipeline has been continuously improving despite cost-cutting and cash conservation measures by clients.
HDFC Securities said that Infosys' financial profile is robust, led by a debt-free balance sheet and healthy cash-generating ability in the past. Infosys had cash and cash equivalent of Rs 26,011 crore as on 30 September 2020.
With prospects of gas demand looking good, GAIL plans to invest more than Rs 45,000 crore over the next five years to expand the National Gas Pipeline Grid and city gas distribution network.
The company is planning to also expand in petrochemicals, speciality chemicals and renewables to supplement growth in its core business of natural gas marketing and transportation.
5. Birla Corporation
The cement company has finalised a plan to scale up its capacity to 25 MTPA by 2025 from the current capacity of 15.6 MTPA, which the brokerage feels will provide strong visibility of future growth.
6. Bandhan Bank
Bandhan Bank is India's largest MFI (microfinance institution) company with over 20% market share in India.
It has consistently demonstrated a strong track record in growing its balance sheet/earnings (AUM grew by CAGR 44% FY10-20).
"In the next five years, it aims to transform itself into a one-stop solution for all banking requirements of mid and low-income group customers," says the HDFC Securities' Report.
7. State Bank of India
SBI is almost immune to any liability-side risks at this juncture, given its expansive, granular deposit base and government's majority holding, the brokerage said. This also makes it better placed to deal with asset quality worries than many other large banks.
All the segments of SBI including insurance, asset management, credit cards and various other services are performing exceptionally well and adding substantial value to the bank's valuation, the brokerage said.
8. Sun Pharma
Sun Pharma has made Rs 12,600 cr worth of cumulative R&D investments over the past six years (FY15-20), which bodes well, according to the brokerage. The pharma company is also well placed and reputed in the CNS, Cardiac, Orthopaedic, Dermatology, Nephrology and Urology in the domestic market.
The recent rise in crude oil prices and the expected uppishness therein is not fully reflected in the current valuations of ONGC, said HDFC Securities. THe brokerage expects the ONGC's acquisition of a majority stake in HPCL to significantly transform its downstream portfolio.
10. NAM India
Given that India is massively under-penetrated, HDFC Securities believes that there is enough scope for asset management companies like NAM to continue to expand profitably. There is increasing acceptability of the Nippon brand by Indian investors, it said, adding that its fund management business has high operating leverage, which will continue to aid profitability.
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