Sensex Crashes 16% From Highs, 2 Stocks You Must Buy & Hold For Long-term

It's the best time to now build a portfolio of good quality strong stocks, with a proven rack record. Here are 2 stocks to buy even as the Sensex has come crashing down more than 16% from highs.

HDFC Bank

The stock of HDFC Bank is available with a dividend of Rs 15 per share, if you buy the stock now. This stock has a proven track record for at least 3 decades now. We do not see the momentum in financial performance slowing down any time soon. In fact, the sharp fall in the stock from levels of Rs 1700 plus, to the current levels of near Rs 1300 has made the stock extremely attractive at a 1-year forward p/e of 18 times. Yes, there is the impending merger with parent company, HDFC, but that should not be a major issue. In fact, we believe that the merger could be EPS accretive. Presently, HDFC has a higher cost of funding, had a net interest margin of around 3.5%. When the housing finance company migrates from a largely wholesale funding structure to a more banking structure, the reduction in the cost of funds logically substantial. In any case, this is a great stock to add to your portfolio as the stock has fallen substantially, on account of selling pressure by FPIs.

Aurobindo Pharma

This is a stock that has fallen from Rs 1016 to Rs 517. The stock has almost halved in price from 52-week highs. Aurobindo Pharma is one of the top players in the pharma business, exporting to the US and also has a significant domestic presence. One of the reasons to be optimistic on the stock is the huge ANDA filings of 727 that it has as on march 31, 2022. The company continues to see volume growth in the complex generics segment and are also making significant progress in the complex development programs including biosimilars. Further the company is also on-track for completing the PLI project as per the committed timelines. There are de merger talks of the injectables business, which should be a big positive for the company and create value for shareholders, that could probably be a bigger trigger for the stock. Apart from this the falling rupee should also be helpful, given that the company is a big exporter. All in all, the stock is also attractive at a price to earnings multiple of around 11 times trailing EPS.

Markets look attractive to buy stocks at the moment

According to Rahul Shah,Co-Head of Research at Equitymaster, no one knows where the bottom is. "However, our research suggests that as soon as the Sensex PE multiple falls below 20x, the markets start looking very attractive from a 2-3 year perspective. Right now, the Sensex trades at a PE multiple of close to 22x. This means we are very close to the levels where we can again dream of earning returns in the region of 16%-18% per annum over the long term.

Therefore, if you are fearful of entering the markets right now, the time to start turning greedy may not be too far away. If history is any indication, there's very little chance you'd lose money over a 2-3 year period if you buy at market PE multiple of around 18x-20x and stick to quality names, be it large caps or small caps.

From a sectoral perspective, it would make sense to look at sectors that are more domestic oriented like auto, capital goods and the whole defence space."