After a stellar rally of over 11 percent on the indices in February itself with Indian indices hitting new highs and then ending the last session of the week to February 12, 2021 on a somber note and there is expectations that after the earnings season and the much awaited Budget 2021 events are behind us, global events will provide fillip to Indian markets, which still has some steam left, with strong outlook for the long term.
And amid it, the global brokerage firm Macquarie has modified weightage in its model portfolio. The weightage has been increased for the stocks in theme 'value state-owned asset plays' by 600 bps to 18 percent currently.
Now, the firm has provided a strong weight to 'digitalization' (around 25 percent), 'financialisation' (around 17 percent), 'building India' (12 percent), while it has lowered weight in the relatively expensive 'consumption' theme by 700 bps to 7 percent.Macquarie still carries a 6-8 percent weight on other themes like 'Make in India', 'gas based economy', 'rural & commercial vehicle recovery'.
Also, the firm added weight to country's largest public run lender SBI. "With the government's renewed focus on infrastructure and better use of digital channels in onboarding customers, we believe SBI is well poised to grow its loan book at around 1.2x system growth. Well provided on legacy assets," it reasoned.
Also brokerage has increased weight for L&T to 8 percent now as the company's core business seems to be up for further re-rating amid strong order backlog, tender prospects, heathly financials as well as infra push in Budget 2021.
Another addition in the brokerage's portfolio is LIC Housing Finance as it is seen as a value play owing to pick up in home loan demand and builder NPL resolutions.
Further it agreed with global technology giants such as Amazon, Google and the like that India still offers the very best opportunity in the long term in EM market outside of China. "Also, unlike China, India's business and political climate, while complex, has the backbone of common law, rules and dispersion of power. As a result, the nature of relationship between private and public sectors in India is different to China's, leaving greater room in India for more traditional private sector. Also unlike ASEAN or Latin America, which are largely cyclical, India has a greater secular capacity while its best corporates are also some of the better ones globally," the brokerage explained.
The company is of the belief that these 7 largecaps are likely to give over 20 percent return and one mid cap offers 100 percent upside:
1. Infosys: Buy with a target price of Rs. 1680, an upside of 29 percent
Over the period of FY21-23, the brokerage sees Infosys to report the strongest US dollar revenue growth among large cap IT majors on account of large deal wins. The most recent being Vanguard that accelerated company's growth.
2. HCL: Target price- Rs. 1280, Return- 33.6%
The stock has been witnessing traction of late as imminent from large deal wins. The firm with 8 percent weightage in the portfolio gains from cloud transformation as world over companies' gear up to cut cost and are on the spree to adopt better technology.
3. Bharti Airtel: (Target: Rs 747 | Return: 25.1 percent)
Since FY22, the company's earnings are on track with gains in the ARPU and margins, adding Africa business potential is under-appreciated.
4. HDFC Bank (Target: Rs 2,005 | Return: 24.9 percent):
"HDFC Bank's (with 5 percent weight) performance is simply driven by book value compounding, within our estimates. The bank is offering the highest growth among the private sector banks. Multiple at 4x P/B is supported by sustainable around 18-20 percent return on equity (ROE)," said the brokerage.
5. BPCL (Target: Rs 510 | Return: 21.4 percent)
The brokerage has given 5 percent weight to BPCL in portfolio, saying government's privatization will unlock SOTP value. "Our base-bull case is Rs 510-690 with 25-75 percent upside."
6. Dr Reddy's Laboratories (Target: Rs 6,000 | Return: 23.5 percent)
Dr Reddy's has 4 percent weight in the model portfolio. Macquarie says "With strong launch momentum across markets, improving productivity and optionality from its COVID-19 vaccine contract, we expect Dr Reddy's earnings can surprise positively (Macquarie estimates 21 percent EPS CAGR over FY20-23),"
7. HDFC Life Insurance Company (Target: Rs 849 | Return: 24.1 percent)
The brokerage has given a 2 percent weight to HDFC Life in its portfolio, considering likely sustenance in individual premium growth, higher sales of protection products leading to margin expansion and higher absolute VNB (value of new business) growth and long-term growth headroom.
HPCL (Target: Rs 510 | Return: 121.7 percent)
HPCL, with 5 percent weight (which increased by 100 bps), is a deep value play at 5x FY22 estimated PE, said the brokerage, adding operating environment going from 'awful' to 'less bad' combined with capacity expansions drives a around 70 percent core earnings expansion by FY23 estimates.