Indian equities have seen a dramatic swing in prices in 2020-from the coronavirus-panic induced sell-off in March to new record highs in December. After breaching the 13,000-mark towards the end of November, Nifty continued its rally to a new all-time high of 14,147.95 on 4 January.
Jefferies expects Nifty 50 index to touch 15,800 by the end of 2021, aided by an economic revival, improved earnings growth and a recovery in the housing sector, among others. The research firm is overweight on banks, property, materials and industrials, neutral on pharma, energy, discretionary, while it's underweight on staples, utilities, IT services and telecom.
Jefferies' top 10 picks for 2021 are:
- HDFC Ltd.
- ICICI Bank Ltd.
- Godrej Properties Ltd.
- ACC Ltd.
- Hindustan Unilever Ltd.
- Container Corporation of India Ltd.
- Maruti Suzuki Ltd.
- Larsen & Toubro Ltd.
- Tata Steel Ltd.
- Dixon Technologies Ltd.
Jefferies' consensus Nifty earnings growth expectations for FY22/FY23 are at 37% and 22%, respectively. The brokerage expects strong earnings growth over FY22-23 to be seen in discretionary/autos, industrials, materials and financials sectors.
It expects metals and cement to see double-digit earnings growth in FY22 at 93% and 25% as both pricing and volume improve year-on-year.
Meanwhile, automakers Bajaj Auto, Hero MotoCorp, Eicher Motors and Maruti Suzuki are projected to see 24-66% earnings growth.
Metal companies like JSW Steel, Hindalco and Tata Steel are expected to see more than 50% earnings growth on the back of rising steel prices and low volumes in base.
Banking and PSUs
As for the banking sector, Jefferies expects large corporate banks like ICICI Bank, Axis Bank and State Bank of India to see 33-65% earnings growth.
The brokerage believes that asset quality trends of banks will improve and that fresh non-performing loan formation will halve in the financial year 2021-22 to less than 1% of the loans.
Provisioning costs should also trend down with several private banks already having created sufficient contingent provisions, Jefferies said in a report.
Further, the brokerage expects housing sector upturn to eventually drive private corporate capex as well, which will kick in from 2021. Jefferies preferred private banks in this regard are ICICI Bank, State Bank of India, HDFC Bank and IndusInd Bank.
Talking about Public Sector Units (PSUs), the brokerage said that privatisation drive will be a positive for PSU stocks, however, privatisation among PSU banks can take time.
It expects PSU IPOs, asset sales to gather pace in 2021, and choose the following as its top picks among PSUs: Container Corp., followed by SBI, Hindustan Petroleum Corp., Bharat Electronics and NTPC.
Axis Securities believes that risk-taking is going to come back meaningfully into the market in 2021 given a stronger than expected economic revival.
Naveen Kulkarni, the CIO of Axis Securities in a CNBC-TV18 interview said that his picks for the calendar year 2021 include NOCIL, Amber Enterprises India Ltd, Solara Active Pharma Sciences and Bharti Airtel.
Talking about NOCIL, Kulkarni explained to CNBC-TV18 that the company is a one-stop-shop for tyre manufacturers for their chemical needs, which makes it well-placed to benefit from a surge in automobile sales volume that is expected in 2021.
He further added that the margins of the company are expected to be quite resilient in the forthcoming quarters. The brokerage has placed its target price on the stock at Rs 176, indicating a potential upside of 22% in one year's time.
12. Amber Enterprises
Axis Securities has a target price of Rs 2,800 on Amber Enterprises, an upside of 18%.
Kulkarni expects the company to not only benefit from the production-linked incentive (PLI) scheme but from a pickup in the pent-up discretionary consumption demand in the next few months that will push its growth for the next 1-2 years.
13. Solara Active Pharma Sciences
Kulkarni sees 15-20% upside in Solara Active Pharma Sciences in 2021 (target price Rs 1,350).
The company, which is primarily into API, has one of the highest gross margins in the industry he said, adding that it has managed the cost-structure very well and return ratios are likely to expand further.
14. Bharti Airtel
Axis Securities sees 31% upside in Bharti Airtel with a price target of Rs 676. Kulkarni told CNBC-TV18 that the telecom operator has managed to deliver healthy growth in operating performance in each segment and has also seen strong subscriber additions in the last few months.
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