Mutual Fund managers have lapped up bluechip stocks including Reliance Industries, HDFC, HDFC Bank, TCS and Avenue Supermarts with these emerging as the top 5 stocks in August 2019, in terms of value increases on month.
The fund managers have put in a whopping 62,600 crore in RIL, Rs 18,900 crore in HDFC, Rs 16,600 crore in HDFC Bank, Rs 11,900 crore in TCS and Rs 9,700 crore in Avenue Supermarts, according to a Motilal Oswal report. Interestingly, In terms of value decrease MoM, four of the top 10 stocks were from Financials.
“SBI (Rs 60,100 crore), ITC (Rs 15,600 crore), IOCL (Rs 13,900 crore), Tata Steel (Rs 13,700 crore) and NTPC (Rs 12,300 crore) witnessed the maximum decline in value on an MoM basis,” the brokerage firm noted.
The mutual fund houses have increased their allocation in Oil & Gas, NBFCs, Tech, Autos, Retail, Healthcare and Consumer sectors, while weights of PSU Banks, Metals, Utilities, Capital Goods, Private Banks, Infrastructure and Media have decreased in the month. “Oil & Gas’ weight increased for the second successive month to 8.0% (+50bp MoM and +120bp YoY), inching closer to its all-time high of 8.1% (Mar’19).
The sector is now at the fifth position in sector allocation of MFs – it was at the seventh position 12 months ago,” noted the report. Another interesting trend emerging from the sector is the the Auto sector’s weight increased 10 basis points on month to 5.5%, after trending down for 15 months.
Equity mutual funds posted a 12.8% on-month rise is inflows to Rs 9,152.43 crore, as compared to Rs 8,112.52 crore in July. Equity mutual funds registered their second highest level of net inflows in the last 10 months. Notably, the SIP inflows have also remained resilient to around Rs 8,200 crore.
Retail investors pumped in Rs 8,230.76 crore via SIP in August, marginally lower than Rs 8,324 crore collected last month, data from AMFI revealed. The total industry AUM (asst under management) rose by 3.8% on-month to Rs 25.47 lakh crore as on August 31. Notably, the liquid funds posted a stellar rise as net inflows rose to Rs 79,428 crore in August as against Rs 45,441 crore in July.
17 stocks in which mutual fund schemes had an exposure of more than 2 percent
ICICI Bank
JM Financial has a buy recommendation on the stock, with a target price of Rs 441.
“We believe ICICI Bank is poised to deliver sustainable core profit growth with a de-risked balance sheet and strengthened franchise. As ICICI Bank enters the ‘NPA recovery’ phase, factors such as high credit growth, recovery of NPAs, and margin improvement should trigger earnings upgrades. We believe, ICICI Bank is well-geared for the next cycle with improved traction in quality asset growth, robust CASA franchise, efficiency gains and improved NIM,” said the brokerage.
HDFC Bank
Japanese brokerage firm Nomura has a buy recommendation on HDFC Bank, with a target price of Rs 2,600.
“We believe HDFC Bank will manage to record about 18 percent PAT growth over FY19-21. Hence, while the near-term core PPOP growth is likely to moderate for the bank, we do not see any significant challenges to its ability to compound earnings. We estimate 18 percent CAGR over FY19-21,” said the brokerage.
Reliance Industries
Motilal Oswal has a buy recommendation with a target price of Rs 1,400.
“The core segment is expected to remain under pressure. However, the recent fall in the stock price since combined with the possibility of a decrease in net debt, makes us upgrade RIL to buy. We reiterate our target price of Rs 1,400, which includes valuation of core segments at 7.5 times FY21 EV/EBITDA, Jio at Rs 230 per share and Retail at Rs 414 per share,”
said the brokerage.
Larsen & Toubro
ICICI Securities has a buy recommendation on the stock, with a target price of Rs 1,606.
“Though the domestic outlook is challenging in terms of private sector capex, given the diversified nature of the business presence, both in terms of geographies and sectors, we believe, L&T will be able to sail through driven by the government capex,” the brokerage said in a recent report.
The brokerage identified Metro projects, expressways, water, airport runways, air sites, high-speed rail and hydrocarbons among the segments that would drive the order intake growth. “Given the traction from public orders, normalisation of net working-capital days, we increase our standalone valuation multiple to 21 times from 20 times FY21 earnings,” it said.
Axis Bank
Morgan Stanley has overweight view on the stock, with a target price of Rs 975.
“While we reduce loan growth estimates marginally to reflect the weaker economy, we also cut cost assumptions meaningfully in FY20 to reflect strong efficiency gains displayed by new management,” the global financial firm said.
“Post the recent correction, the stock is trading below long-term average multiples. Near-term performance should be driven by news flow on asset quality, but given likely compounding of core PPoP, stock returns should be strong,” Morgan Stanley added. It, however, talked of risk in underestimating the potential increase in NPLs, as stock performance would pick up only once investors
were comfortable with asset quality progression.
Tata Consultancy Services
Sharekhan has a buy recommendation on TCS, with a target price of Rs 2,450.
“We continue to remain positive on TCS’s strong organic revenue growth momentum in FY2020E, given acceleration in deal wins with increasing TCVs, strong digital growth, scope expansion and strength in its business model. However, additional pressure from increasing visa costs together with tight talent supply at onsite locations would keep margin pressure on
a constant currency basis, while rupee depreciation will aid margins in the near term,” the brokerage said.
ITC
Brokerage Prabhudas Lilladher has a buy recommendation on ITC, with a target price of Rs 367.
“Although ITC is likely to face near-term headwinds in demand, long-term outlook looks promising given sustained innovations new launches in snacking and dairy. Paperboard business is in fine fettle given gains from steady prices and benign input costs,” said the brokerage.
HDFC
Edelweiss Securities has a buy recommendation on HDFC, with a target price of Rs 2,589.
“Despite emerging challenges in the real estate market, HDFC reported stable operating metrics in Q1FY20. We believe well-run business models with strong balance sheets, market leadership and favourable cost advantage, HDFC will emerge stronger and earnings vulnerability will be limited,” said the brokerage.
State Bank of India
Morgan Stanley has overweight view on State Bank of India, with a target price of Rs 330.
“SBI’s balance sheet has improved over the past few quarters with moderating bad loans and higher coverage. Near-term credit cost will remain elevated, but we expect credit cost to moderate in F2021-22,” said the global financial firm.
“Good loan growth coupled with stable NIM and cost control should help drive strong PPoP progression from current low levels. We expect core PPoP CAGR of more than 20 percent over the next three years.”
Asian Paints
Brokerage Centrum Broking maintains buy recommendation on the stock after the June quarter earnings, with a target price of Rs 1,639.
“Driven by its focus on distribution expansion and fast-changing consumption patterns in rural (areas), we continue factoring in double-digit volume growth in the decorative segment. With further ramp up in newly commissioned plants in Mysuru and Vizag, we expect cost benefits and revenue growth momentum to continue,” the brokerage said.
Eicher Motors
Nomura has reduced rating on the stock, with a target price of Rs 13,780.
“We believe that competitive intensity will increase further in the second half of FY20, as competitor Jawa increases production. We lower our margin estimates by 1.5 percent and 1.9 percent to 25.9 percent and 24.5 percent, respectively, over FY20-21, leading to 13 percent and 22 percent cut in standalone earnings per share (EPS) estimates,” the foreign brokerage said.
UltraTech Cement
Domestic brokerage Sharekhan has a buy recommendation on UltraTech Cement, with a target price of Rs 5,000.
“The cement sector has continued to show pricing discipline in a seasonally weak quarter. Further, the government has highlighted its priority of stepping up infrastructure spending by setting up a task force that would be identifying projects for frontloading capital. The target of Rs 100 lakh crore investment in infrastructure remains unchanged over the next five years. Hence, we continue to believe UltraTech, being a market leader, will reap benefits with strong net earnings growth over FY2019-FY2021E,” said the brokerage.
HCL Technologies
Axis Securities has a buy recommendation on HCL Tech, with a target price of Rs 1,235.
“Robust business structure, healthy deal pipeline and revitalisation of key business segment make HCL Tech a safer bet to invest in. Rising demand across geographies and across different verticals helps HCL Tech to attain higher growth momentum. We assign 13.8 times P/E multiple to its FY21E earnings of Rs 89.5 per share which gives a target price of Rs 1,235 per share, an upside of 15 percent,” said the brokerage.
Britannia Industries
Nirmal Bang Securities has a buy recommendation on Britannia, with a target price of Rs 3,220.
As per the brokerage, Britannia has been continuously outpacing the market but the slowdown in the value category is expected to affect near-term growth slightly.
The brokerage, however, believes that the company’s new launches and innovations, distribution
expansion (reducing gap with Parle) and judicious pricing (to be competitive in the market) will lead to better growth than peers.
“With improving product mix (premium growing faster than the value
category), moderate competitive intensity, modest price hike (to offset raw material inflation) and sharp focus on cost optimisation should support operating margin trend,” said the brokerage.
Vedanta
Brokerage Phillip Capital (India) maintains buy recommendation on the stock after the June quarter numbers, with a target price of Rs 205.
“Zinc and oil & gas businesses are expected to report robust volumes growth in the next couple of years and would continue to contribute around 80 percent of EBITDA. Comparatively lower debt levels and expectation of dividend yield of 5-6 percent remains positive for the company,” the brokerage said.
Power Grid
Emkay Global Financial Services has a hold recommendation on Power Grid, with a target price of Rs 212.
“We expect projects worth Rs 63,000 crore (current projects in hand) will be capitalised over the next three years, with a slight delay in certain TBCB projects. As Q1FY20 witnessed a significant decline in project execution, we continue to expect slow annual capitalization run-rate for FY20E and FY21E,” said the brokerage.
Hindalco
ICICI Direct has a hold recommendation on Hindalco with a target price of Rs 185.
“The operating environment for the aluminium industry remains challenging given subdued aluminium prices. Hence, we expect the consolidated EBITDA margin to hover at around 10.5-10.8 percent mark for both FY20E and FY21E (11.9 percent in FY19),” said the brokerage.
