French brokerage BNP Paribas has coined the term ‘Bharath’ representing 8 large domestic stocks that have the potential to outperform the benchmark Sensex over the next one-year period.
The stocks in this basket are Bharti Airtel, HDFC Bank (and HDFC Life), Asian Paints, Reliance Industries (RIL), Tata Consultancy Services (TCS) and Hindustan Unilever (HUL).
BNP analysts say these are companies with business models that could reach about a billion people. “We think such a reach enables them to withstand difficult business cycles and come out stronger as competition around them struggles. The companies within our coverage in the Bharath list offer a potential upside of 16.7 per cent despite the recent rally,” said Amit Shah, head of
India equity research, BNP Paribas.
The brokerage has a Sensex target of 41,500, implying a 6 per cent upside from current levels.
“We have done a scenario analysis based on historical five-year average of next 12 months P/E and P/BV multiples. We now firmly believe the worst is behind us and are now steadily heading towards a recovery. Near term, the market might have run slightly ahead of its fundamentals but we do not see material downside from current levels,” said Shah.
The bear case scenario for the brokerage is the benchmark indices slipping 9 per cent from current levels, while the bull case scenario offers about a 10 per cent jump from current levels.
BNP said these companies are benefitting either through cost savings by the adoption of work from home (WFH) or by higher revenue growth.
BNP said the Nifty returns over the last 18 years show that the market has been getting narrower, with fewer stocks dominating returns.
When asked about whether the retail investor-driven rally will sustain, Shah said increased retail participation was a global phenomenon and was caused by a lack of adequate returns in other asset classes.
“This might be one of the few times when the retail investors could have the last laugh. It is unlikely that the plug is likely to be pulled unless there is a big shock in the system,” he said.