Top five stocks and ideas for Samvat 2069

The Sensex has gained a modest 8 per cent in Samvat 2068. The gains have come entirely on the back of nearly $18 billion (year-to-date) in foreign inflows from institutional investors. In contrast, Indian equity funds have witnessed heavy redemptions.

The BSE Sensex saw steady declines after rising over 500 points a day after Diwali last year. By the end of the calendar year 2011, the Sensex had shed over 10 per cent to 15,500 from the 17,300 levels in Diwali. The Nifty slipped from 5,200 to 4,600 levels.

Markets made a strong start in 2012 with the Sensex rising to the 18,000 mark, and the Nifty hitting 5,600, in February. However, concerns over retrospective amendment of tax laws and the General Anti-Avoidance Rule (GAAR), which were announced in the Union Budget 2012-13, and were aimed at tax evaders, dampened sentiments on the Street.

Indian stock markets got a leg up in September after a pick-up in policy action from the government. A hike in diesel prices followed by decisions to open up the retail and aviation sectors to FDI sent the Sensex to the highest in 15-months. The sharp gains through September were followed by a quiet October, when markets consolidated.

While the benchmark indices gained a mere 8 per cent, several stocks turned out to be multi-baggers. UltraTech Cement (up nearly 80 per cent) was the top Nifty gainer since Diwali last year. FMCG major HUL (up nearly 55 per cent) also saw strong gains through the year. India's biggest commercial vehicles manufacturer - Tata Motors (up nearly 45 per cent) and India's fourth largest IT services exporter HCL Tech (up nearly 45 per cent) also cheered investors.

Private steel and power producer JSPL (down nearly 30 per cent), mobile carrier Bharti Airtel (down nearly 30 per cent), and state run power equipment maker BHEL (down over 26 per cent) had a forgettable year.

The modest return over the last year would be disappointing for most investors. However, there might be better days ahead, with expectations of a rebound in the economy and a likely easing of interest rates.

Bharat Iyer, ED and head (India equity research) at JPMorgan said investors should focus on financials and cement stocks in this year. Raamdeo Agrawal, joint managing director of Motilal Oswal Fiancial Servcies said auto stocks might be a good bet.

Here are five stock ideas for Samvat 2069 from brokerage firm ICICI Direct.

1) State Bank of India (buying range: 2210-2150):

Why buy: Despite aggressive rate cuts, SBI is maintaining one of the highest net interest margins at nearly 3.7 per cent. A strong operational performance led by net interest income (NII) enables SBI to cover up for higher provisioning and post decent profitability. Elevated non-performing assets are factored in the price. SBI's exposure to stressed sectors is relatively low compared to its peers. The economy and investment cycle is near bottom and interest rates are expected to come down.

2) Coal India (buying range: 348-335)

Why buy: It enjoys a monopoly status in the Indian market. Coal India produces nearly 90 per cent of its coal through open cast mining and witnesses low stripping ratio, which ensures that reserves are easily extractable thereby helping it position itself among the lowest cost coal producers in the world. Massive capacity addition anticipated in the power sector augurs well for Coal India. CIL has a strong balance sheet with robust cash flow and a healthy liquidity position.

3) JK Lakshmi Cement (buying range: 127-120)

Why buy: Capacity expansion led volume growth, improvement in margins and return ratios and cheap valuations is likely to drive the stock.

4) Marico (buying range: 205-195)

Why buy: The stock has been trading in the range of 23-28-times its two year forward Price Earnings, which is at a discount to the FMCG index. With sustainable volume growth and healthy margins, the company would start commanding higher multiple in future.

5) Lupin (buying range: 590-565)

Why buy: The management has guided for ~100 basis points improvement in EBITDA margins every year on the back of continuous improvement in product mix and cost rationalization. Sales, EBITDA and PAT are expected to grow at a CAGR of 24 per cent, 27 per cent and 29 per cent, respectively, in FY12-14E. The stock is currently quoting at 18-times FY14E earnings per share (EPS) of Rs 32.5.

Disclaimer: Investors are advised to make their own assessment before acting on the information.

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