At a time when the second Covid 19 wave has once again brutally engulfed the country with the reporting of over 1.3 lakh cases in a day, the brokerage firm Axis Securities citing caution has recommended some of the stock picks. Nonetheless, experts are optimistic that in the race of vaccination drive and the rising case of Covid 19, the former would win without considerably impacting the markets. In fact various industries have been announcing of their preparedness to deal with the second Covid wave.
However what is at risk as per the brokerage is the swift economic recovery which lately gathered pace as well as economic activity. And of the total caseload in the country, 5 states account for 73.24 percent. "Maharashtra will look to break the transmission chain through the lockdown, but it must also contain the outbreak within its borders in the national interest. While other states have put in restrictions on inter-state travel," the Axis report pointed.
Worst Case Scenario
So, in a worst case scenario if the situation takes a bad shape similar to Brazil, Axis Securities has come up with recommendations based on what transpired in the last nationwide lockdown. And the least risk facing sectors include Pharma, IT services, Chemicals & Fertilisers, Telecom and FMCG from EPS/PE erosion in a lockdown scenario.
Further as per the brokerage observation, sectorally sales growth were not impacted for chemicals and fertilizers, telecom, IT services as well as pharma. Also, utilities including OMCs and power saw a decline in sales but profits were maintained during June quarter.
Market situation if partial lockdown is imposed:
In this event the sectors that shall continue to perform include FMCG, infra, resources as well as cement will likely maintain and that was even witnessed from the September quarter performance, noted Axis.
So, the sectors as per the brokerage that will suffer the most brunt in a partial lockdown situation shall be media, engineering, real estate and retail. And the impact on the auto will be based on the degree of severity.
And for the purpose, the brokerage has come up with the list basis 3 criterion including
1. Business resilience or sales
2. Operational flexibility or EBITDA
3. Market acknowledgement or price performance
And basis the above given criteria stocks are placed into 3 buckets:
1. In the first 35 stocks that registered healthy June 2020 sales as well as price performance. The only exception being from the BFSI pack wherein it included stocks that registered positive price performance by December 2020- a sign of book confidence.
The stock list here comprise Divis Labs, IPCA, Alembic Pharma, PI Industries, Britannia Industries, Persistent Systems, L&T Infotech , HDFC Bank, Kotak Mahindra Bank, Bharti Airtel, Dr. Reddy's, Biocon, Natco Pharma, Cholamandalam Investment, Mphasis, Bajaj Finance, Coforge, Indian Energy Exchange, Cipla, Aurobindo Pharma, HCL Technologies, HDFC, Infosys, Alkem Labs, Eris Lifesciences, Tech Mahindra, HUL, Cadila Healthcare, Mindtree, Sumitomo Chemical,Torrent Pharma, Nestle, Glenmark Pharma, TCS and Syngene.
2. Stock picks in case of partial lockdown:
17 stocks that registered positive September 2020 sales as well as June 2020 performance (early market acknowledgment-confidence in business model or outlook)
Here the list includes Balkrishna Industries, JK Cement, SRF, Navin Fluorine, Whirlpool India, Amara Raja Batteries, Dabur India, CG Consumer Electricals, Godrej Consumer, Berger Paints, Shree Cement, Asian Paints, Sun Pharma, Pidilite Industries, Varun, Sudarshan Chemical and Jindal Steel and Power.
3. Partial lockdown- Stocks that showed late rally:
16 stocks that saw positive September 2020 sales and positive price performance in Sept quarter - late acknowledgment by the market; could adapt in future market movement.
The stock list includes HeroMotocorp, Redington, Emami, Voltas, Suprajit Engineering, JSW Steel, Maruti Suzuki, Astral Polytechnik, Aster DM Healthcare, Ambuja Cements, Supreme Industries, Minda Industries, Mah& Mah, TVS Motor, eClerx Services and Matrimony.com