Investors see market revival after Diwali: stock picks of top brokerages

Analysts are optimistic that the stimulus measures and the five back-to-back rate cuts will help narrow this divergence in the new Hindu financial year -- Samvat 2076 -- that gets underway Sunday

Once a year, for the Hindu festival of Diwali, India’s stock exchanges hold a special one-hour session where brokers make ceremonial purchases of shares to win the favor of the goddess of wealth.

The centuries-old tradition of seeking the blessings of Lakshmi has taken on an added purpose this year as investors pray the recent government steps revives growth and solidifies the recovery in equities that’s taken the $2 trillion market close to its June peak.

“We expect the index to scale into uncharted territory and give a lot of opportunities for wealth creation in the coming quarters,” said Rajiv Singh, chief executive officer at Karvy Stock Broking Ltd. Singh said cyclical stocks will do well as the economy is expected to revive.

While India’s key equity indexes have risen at least 10 per cent since last Diwali, led by a handful of heavyweights, the broader market has trailed the gains sparked by a surprise tax cut for corporates and the return of global funds to local shares. That’s as investors continue to seek the safety of the biggest stocks in times of tepid earnings growth and a lingering credit-market crisis.

Still, analysts remain optimistic that the stimulus measures and the five back-to-back rate cuts so far in 2019 will help narrow this divergence in the new Hindu financial year -- Samvat 2076 -- that gets underway Sunday. The session will begin at 6:15 p.m. in Mumbai. Markets will be closed Monday.

“The backdrop for the economy and earnings is improving as we step into the new Samvat,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd. The $600 million of foreign funds that came into shares this month, on top of September’s $955 million, will grow as the economy gets better, he said.

The iconic Jeejeebhoy Towers, home to the BSE, will be decorated and lit up for the occasion, as brokers flock to its premises in traditional attire along with their families to take part in a ritual that goes back at least five decades. The S&P BSE Sensex has ended higher in eight of the past 12 Diwali-day sessions.

Here’s are some top picks by brokerages based on their potential 12-month return:

ICICI Securities

United Breweries: target price Rs 1,620

The leader in India’s beer market and is expected to maintain its share of 51 per cent-52 per cent of sales; expect volumes to grow at 8.5 per cent CAGR in FY19-21.

Axis Bank: target price Rs 865

Valuations attractive for third largest private sector lender; recognition of large number of bad debts to help keep a lid on the ratio of loans turning sour.

HDFC Securities

Sudarshan Chemical: target price Rs 460

World’s fourth largest pigment maker aspires to be number three in next five years; has 35 per cent share of the local market.

Amber Enterprises: target price Rs 1,140

Component maker to eight of 10 air conditioner brands in India; low air-conditioner penetration in India -- only 4 per cent versus global average of 30 per cent -- offers huge opportunity.

Reliance Securities

Sonata Software: target price Rs 395

Has partnership with Microsoft

Crompton Greaves: target price Rs 297

Strong, established portfolio of products with a wide distribution network.

Anand Rathi Securities

ICICI Prudential Life Insurance: target price Rs 575

Well positioned for recovery and growth, given its cost-cutting efforts, distribution network, range of products and value of new business.

Indraprastha Gas: target price Rs 450

Pace of sales remains strong for the compressed natural gas distributor; government’s plan to provide 10 million connections by 2020 provides big opportunity.

Prabhudas Lilladher

UPL: target price Rs 752

Agro-chemical maker’s diversified presence across crops and geographies has enabled it to outperform industry, minimize impact of volatility due to trade wars.

Cholamandalam Investment: target price Rs 356

Maintains strong asset book amid auto industry slowdown and tight liquidity; focus on high-yielding loans for used commercial vehicles, construction equipment and two-wheelers will improve net interest margin.