The sharp run up in the markets from early September has caught most investors unawares. The rally was tilted in favour of select large cap stocks which are now trading at very high price earnings multiples. Historically, this pattern is followed by an early -bull market- in which the first leg is always large cap driven. The second leg is likely to be broad based, which means that it will spread to more sectors/stocks.
These stocks are available at huge discounts to large caps.
These high beta stocks are likely to outperform broader markets
- HDIL: It trades at a discount of 0.34 times to its book value of Rs 239. The company holds sizable land bank in Mumbai. The government's approval to FDI in multi-brand retail will improve the prospects of realty firms as commercial land prices may rise. HDIL has recently developed huge commercial space in main Andheri which should now see good realization. However, the company has high debt, which has hurt the bottom line. Technically, the stock has closed over all its short & long term moving averages which were at Rs 79. We expect a target of Rs 110 by December.
- Canara Bank: The stock has been a big underperformer mainly due to rising non-performing assets and restructuring of large corporate loans. However, the government's decision to allow foreign companies to invest in aviation and retail sectors may reduce the threat of bad loans in these sectors. The yield on the 10 year government paper has hit one-year low, which may lead to sharp treasury gains for Canara Bank, which has a huge exposure to the 10-year paper. The bank trades attractive valuations. Technically, the stock has shown smart rebound in the last few days & is now trading above its 50 day moving average of Rs 360. The bank looks better positioned after the RBI cut in CRR. Buy with a target of Rs 421, which is also the 200 day moving average for the stock.
- IVRCL Infra: Infra stocks have been hit because of delay in approvals and high cost of debt. The CRR cut should see reduction in cost of finance. The company is selling certain non-core businesses to raise cash and reduce debt. The recent inflow of orders in roads, power & water projects have been encouraging. The next round of reforms could give a big push to the infra sector and with environment issues being sorted on a fast track basis, infra stocks should gain. The stock has closed above its 50 DMA at Rs 44, but will face resistance at Rs 48, which is the 200 DMA. Target Rs 58-60 in the next 3-4 months.
- Sterlite Industries: It has been a huge underperformer because of the sharp drop in commodity prices. The stock trades at very attractive levels and has huge potential for upside given the almost monopoly in the type of business it covers. The correction in commodity prices may have temporarily reversed due to QE3 & ECB bond buying. The stock is one of the best proxies to global commodity plays. Technically, the stock is within striking distance of its 200 DMA at Rs 105. Expect year-end target of Rs 125.
- Lanco Infra: The stock has underperformed because of issues in the power sector, erratic coal supply, high cost of debt, and environmental delays. The company is poised to become the largest private power producer over the next two years. Supply issues may be resolved with Coal India signing fuel supply agreements. The company is selling non-core assets to reduce debt. The FDI approval in power exchanges should help the company as it engages in power trading in huge volumes. The reduction in CRR will lower the cost of finance. Technically the stock faces resistance at Rs 14.3, which is the 200 DMA. Expect targets of Rs 18-20 by the end of the year.
Disclaimer: Investors are advised to make their own assessment before acting on the information.