Looking for value in the new Samvat? Here are the top large-cap picks

After a stellar Samvat 2073 that saw most indices rise by over 20 per cent, the past year or Samvat 2074 has not been as rewarding. Barring the large-cap indices S&P BSE Sensex and Nifty50, many others ended in the red. If last year was about toning down investor expectations, for Samvat 2075 brokerages, while being cautious, see pockets of value emerge across sectors. The cautious stance is due to multiple headwinds such as expensive oil, weak rupee, impact of IL&FS default on non-banking financial companies (NBFC), uncertainty over political outcomes in state and general elections, and global trade wars. However, with the correction over the last few months and Nifty valuations closer to its 10-year average, brokerages believe it is time to selectively buy good quality businesses at reasonable prices. The cautiousness also stems from the corporate earnings outlook. For FY19, earnings growth, which has been muted over the past couple of years, is again expected to be lower than initial expectations of 18-20 per cent, thanks to the pressure on margins, high interest rates and subdued demand. For the new Samvat, analysts are bullish on the domestic consumption themes both staples and discretionary, select private banks, information technology and pharmaceutical stocks. 

Reliance Industries

• Reliance Industries’ (RIL) refining and petrochemicals businesses are significant cash generators and will help fuel growth of new businesses like retail and digital (Jio)
• RIL’s retail business is India’s largest. It has clocked a compound annual growth rate of 45 per cent in the past five years placing it among the world's top five fastest-growing retail firms. RIL plans to integrate its physical and digital platforms and double the share of retail in consolidated revenues by FY21 from 15 per cent now
• Jio, having garnered 250 million subscribers in 25 months, is seen growing at a similar pace. The fibre-to-home business is expected to boost revenues. Acquisition of Hathway Cable and Den Networks will add to Reliance’s digital business
• Petcoke gasification project and new fuel regulations to boost margins of its largest business of refining 
• Vertical integration to drive profits of petrochemicals business

IndusInd Bank

• IndusInd is one of the best performing private banks with a 27-28 per cent annual growth in advances and net profit over FY14-18, and a strong capital base
• Asset quality remains strong with gross non-performing assets as a percentage of gross advances standing at 1.09 per cent as of September 2018
• Growth momentum is likely to persist with recovery in advances aided by thrust on commercial vehicle loans
• Merger with Bharat Financial could add to earnings with increase in customer base and increased cross selling. But, the merger can also lead to rise in credit risk; Rs 30 bn IL&FS exposure is another risk

Infosys

• All-time high order wins in September quarter suggest that strategies under the new CEO are starting to bear fruit
• Impressive order pipeline is despite no compromise on pricing and margins
• Top accounts, banking, insurance and financial services and digital verticals are the key growth engines. Further, growth across geographies and weak rupee to add to the bottom line growth
• Analysts say if the revenue momentum continues, Infosys could narrow the growth differential with larger peer, TCS
• Valuations at 15.1 times FY20 earnings estimate are reasonable and the discount of over 20 per cent to TCS could narrow

Asian Paints

• The leader in domestic paints with around 54 per cent in the organised sector, Asian Paints is also amongst the top 10 decorative paints player in the world
• Government’s initiatives to push up housing sector growth, increasing disposable income levels, the recent slash in goods and services tax and rising consumer demand are expected to fuel the prospect of India’s paints industry
• Asian Paints would benefit from this amid strong distribution network, capacity additions (at Visakhapatnam and Mysuru with combined annual capacity of 1.1 million kilolitres) and new product launches
• Concerns over rising crude oil prices and weak rupee are likely to be mitigated with improved product mix and operating leverage besides selective price hikes. Analysts expect 12-15 per cent annual rise in net profit over next two years

Maruti Suzuki

• Favourable product cycle with leadership in  high-growth segments, better mix with rising share of premium vehicles and falling discounts to lift margins of India’s largest car maker
• Maruti’s market share is expected to rise further on better demand, steady volume growth and shrinking waiting periods. Lower supply constraints and higher demand from rural areas should also help 
• Headwinds in the form of insurance costs, high interest rates, commodity inflation and rising vehicle running costs are expected to ease over the medium term 
• Lower exposure of imports, increasing localisation of parts and cost efficiencies to keep overall expenses under control and boost cash flows

Britannia industries

• A leader in biscuits with 33 per cent market share by value, Britannia has forayed into bakery and dairy products; the latter is seen as a sunrise sector for organised players. 
• Innovation, increase in the launch of premium products, expansion of distribution network in under-penetrated areas (total outlets 5.2 million) and gains from goods and services tax rollout would help sustain its leadership 
• Though high input costs are a near-term worry, higher product premiumisation, cost efficiency, and backward integration in diary to protect margins
• Analysts expect the company’s net profit to grow by 15-20 per cent annually over FY18-20

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