Place your bets on mid, largecaps as they await fireworks in Samvat 2081

Ram Prasad Sahu lists top picks by brokerages for Samvat 2081

Samvat 2080 was a repeat of the previous year with the midcap and smallcap indices delivering twice the returns of their largecap peers.

 

While the Sensex did well with gains of 24 per cent, the BSE midcap and smallcap indices did even better with 47-49 per cent returns during this period. The latter two had delivered 32-38 per cent in Samvat 2079. 

 

This journey, according to Motilal Oswal Securities, can be attributed to healthy corporate earnings, political continuity, surge in domestic flows, and resilient macro landscape that has weathered global storms.

 

Moderation in inflation and expectation of the peaking out of global interest rates in the past few months have also supported equities. 

Given that a significant portion of the markets are richly valued and there is pressure on earnings due to demand and cost woes, brokerages suggest that investors should move from small to mid and largecaps.

 

In this context, ICICI Securities says that investors look at a long-term horizon and consider quality companies with strong earnings growth and visibility, stable cash flows, high return on equity and capital employed.

 

Here is a compilation of such stock recommendations, most of which are recommended by at least two of the top brokerages. 

 

ICICI Bank 

 

• Unlike many of its peers, ICICI Bank reported a steady Q2FY25 with a 15 per cent year-on-year (Y-o-Y) growth in net earnings
• The Q2 showing, according to JM Financial Research, highlights the bank’s strengths as a strong liabilities engine (deposits grew 5 per cent quarter-on-quarter and 15.7 per cent Y-o-Y)
• This was coupled with robust asset quality (gross slippages at 1.7 per cent, which is the lowest over the last couple of years) and profitability too remaining intact with return on assets at 2.4 per cent
• A stable mix of high-yielding portfolio and ongoing growth in business banking, small and medium enterprises, and secured retail segments are driving broad-based growth, helping the bank maintain healthy business diversification, says Motilal Oswal Research 

 

Gravita India 

 

• It is the market leader in the Indian recycling industry with a focus on lead recycling
• The organised segment’s market share will expand significantly with regulatory tailwinds and the company is best placed to capture this opportunity, says Kotak Securities
• Gravita is eyeing an increase in the share of value-added products and, therefore, its operating profit margins 
• The company has consistently increased its recycling capacity and plans to expand it by 72 per cent to 500,000 tonnes per annum by FY27 
• In addition to these, focus on diversifying earnings towards non-lead business/improve value added products is expected to drive a strong 30 per cent rise in net profit over FY24-27 along with high RoE/RoCE of 28-32 per cent by FY27, says JM Financial Research

 

Macrotech Developers 

 

• One of the largest residential real estate developers in the country Macrotech Developers (Lodha) has delivered more than 95 million square feet of real estate over the last four decades 
• It is currently developing over 103.1 million square feet under its ongoing and planned portfolio as of FY24
• Over the last 5 years, the company has reduced its gross debt by Rs 15,683 crore from Rs 23,363 crore in FY19 to Rs 7,680 crore in FY24 and aims to keep the net debt/equity under 0.5 times
• At the current price, the stock trades at FY25/FY26 price to pre-sales ratio of 6.6 time/5.5 times, respectively, estimate analysts
• Looking at the healthy growth guidance, the fair value of the stock lies at Rs 1,398 per share for medium to long term, says SBI Securities

 

National Aluminium 

 

• National Aluminium (Nalco) is one of the lowest cost producers of alumina globally and has integrated operations with an increase in alumina refinery capacity
• The 1 million tonnes per annum alumina refinery expansion bodes well for its integrated business model
• Captive sourcing of coal is expected to lower the requirement of expensive e-auction and reduce the cost of production for alumina and aluminium, which would boost margin
• HDFC Securities expects a firm and strengthened aluminium price outlook due to tightness in global supply and recovery in demand
• Nalco trades at an attractive valuation of 6.8 times its FY26 operating profit estimates and offers a healthy dividend yield of 3 per cent, says JM Financial Research

 

Bank of India

 

 

 

• Bank of India is focusing on RAM (retail, agri-culture, micro, smalland medium enterprises) lending in its endeavour to enhance yield, with a target of 55 per cent of the portfolio allocated to RAM
• The RAM portfolio of the loan book showed good growth of 18.8 per cent Y-o-Y in Q1FY25
• Following a strong Q1 show, the public sector lender has guided for a credit growth of 13-14 per cent and deposit growth of 11-12 per cent for FY25 
• Slippage ratio is expected to be lower at 1.2 per cent of advances in FY25 vs 1.6 per cent in FY24 and recoveries are expected to surpass slippage number in FY25
• The bank is hopeful of achieving a return on assets of 0.9 per cent in FY25

 

NCC   

 

• NCC is a leading construction firm with presence across verticals such as buildings, roads, water, and mining, among others, with a standalone orderbook at ₹47,625 crore, which is 2.5 times its trailing 12 months book-to-bill
• Its experience and proven execution capabilities can help leverage rising opportunities in the buildings, water infra, transportation, metros, defence, and airports as the awarding momentum picks up, says HDFC Securities
• Given the robust orderbook, JM Financial Research expects healthy revenue growth of 15.6 per cent during FY24-27 to Rs 28,275 crore 
• The top line growth guidance is at 15 per cent for FY25, albeit accelerated order inflows could drive an upgrade for the same 

 

Power Grid  

 

• India’s largest power transmissioutility carries around 45 per cent of total power generated in the country Given the multiple renewable energy projects it is planning to develop, the company will be a large beneficiary of India’s ambition to grow its renewable energy capacity to 500 Gw by 2030
• Recovery in capex is finally gaining traction with upward revision in guidance to Rs 18,000 crore for FY25 and Rs 55,000 crore during FY26-27
• Capex recovery and regulated RoE model provides strong earnings visibility during FY26-27 
• JM Financial highlights that Power Grid’s valuation of 3.1 times FY26 P/B is at a 28 per cent discount to average valuation of private power companies on FY26 P/B

 

Reliance Industries 

 

• In addition to ongoing oil-to-chemical projects, India’s largest listed private sector company intends to transitio to renewable and bio-energy in order to reach net-zero by 2035, while also improving profitability with lower energy cost
• Reliance Industries’ (RIL’s) digital services subsidiary Reliance Jio has added the most number of wireless subscribers over the recent past
• Given the recent tariff hike, HDFC Securities expects the average revenue per user could increase to Rs 200-205 per month in FY25 from Rs 195.1 per month in Q2FY25 and Rs 181.7 per month in Q1FY25
• The RIL stock has underperformed the broader market on a YTD basis and JM Financial says the underperformance could reverse supported by faster-than-anticipated tariff hikes by telcos, recovery in retail business, and positive announcements on new energy business

 

Zomato 

 

• One of the largest food services platforms, Zomato has consistently gained market share over Swiggy from FY22 to Q1FY25, driven by its stronger execution
• Zomato’s vision of creating strong brands across food delivery, grocery, and going-out segments could make it a formidable platform that could command a high wallet share from urban consumers, says Motilal Oswal Research
• Its quick service arm, Blinkit, is a rapidly evolving business given high growth rates, expansion to new cities and continuous new category addition
• Kotak Securities expects Zomato to deliver annual revenue growth of 44 per cent and strong improvement in operating profit margin during FY24-27

 

PNB Housing Finance

 

 

• PNB Housing Finance is the country’s third-largest housing finance company (as of FY24) with an assets under management of Rs 71,243 crore and a loan book of Rs 65,358 crore
• The company aims to grow its retail loan book to over Rs 1 trillion by FY27, targeting an annual growth of 16 per cent from FY24 to FY27 
• Affordable housing is expected to contribute 14-16 per cent while the emerging markets segment is projected to account for 22-25 per cent
• During FY24-26, HDFC Securities estimates an annual growth of 18 per cent in the lender’s loan book over FY24-26 while net interest income is expected to grow at 16 per cent and PAT at 15 per cent
• Return on assets is expected to improve to 2.2 per cent by the end of FY26