New Year Stock Recommendations 2022

Journey of Indian Stock Market in CY21 and Outlook for CY22

Rally of the Market

In Year 2021, Indian Stock Market was one of the best performing market in the world, Nifty gave return of 26% YTD this year while mid and small cap perform better than largecap. Within the large cap Index, IT was the outperformer with 54% return and  Bank Nifty was an underperformer with 18% return. This rally in markets was on the back of very easy liquidity, strong earning recovery and very strong retail participation. This year Primary market was also very active as new age companies entered the market. Market was in a bull trend till October as every dip was very quickly bought into. From October onwards bulls are taking a breather, digesting this big gain and consolidated in a range.

From October onwards market faced few negative events like china Evergrande issue, rise in crude price, high inflation in India and world, new covid variant and Federal Reserve signaling early and fast QE tapering that impacting market. As market was at high valuation market needed a trigger for correction and finally it got it. Market has recently corrected 10% from its highs and now consolidating within a range. One of the biggest positive for this year was the DIIs participation which has constantly absorbed FII selling, this year FII has sold roughly 80000 crore. The biggest reason of their outflow from India is the premium valuation as most major Global brokerage firms from October onwards has been downgrading India, then the faster tapering of QE by US Fed and also raising interest rate forecast, FII are also selling in secondary market to participate in primary market.

Outlook for 2022

Going forward, We feel next year market to consolidate in the first Quarter of the CY. However as the earning catch up valuation corrects itself so we can expect renewed participation from the market participants due to better earnings and better valuations. Biggest trigger for next year is going to be US Fed Tightening Policy, Inflation around the world, State Election in five state, market will be keenly watching the UP election verdict as it is the biggest state of India, corporate earning and RBI stance on Interest Rate . So for the long term prospectus Investor should look any significant dip as an opportunity to buy for long term , as earning cycle is finally showing sign of bottoming out, credit cycle is expected to pick up, IT sector is seeing very strong demand and  realty sector is making a come back after a decade. India looks in a sweet spot but turbulence in between will continue and Investor should make full use of those dips.

 

• RIL, in the last year, has seen strong deleveraging on the back of value unlocking in the Consumer business, and they have raised capital through right issue.
• Reliance GRM has fallen in the first half of FY21, However, the Petrochem segment should offset the impact on the back of good demand and continued delays in upcoming capacities.The Digital business, over the last couple of years, has seen a strong ramp-up, partly . It has reached 20% of core retail revenues, Key operating metrics such as daily orders, average order values, delivery timelines, and order returns have all been improving significantly. The key factors supporting JioMart are the physical store connectivity and new warehouses, which have ramped up the supply chain.

Outlook:

Being one of the two leading players in telecom space, Airtel is capitalizing on every opportunity. Factors such as work from home, streaming of more entertainment content online, and home schooling continue to boost the performance of the company. With the recent tariff hike, ARPU expected to increase for the industry and Bharti with the highest ARPU in the industry is set to benefit from this move which is expected to increase earnings of the company by 20-25% in next 2 years as per our estimates. Hence, investors can buy the stock at CMP of Rs. 676 at the current level for target price of Rs.920.  Time frame should be 9-12months.

Outlook:

HUL is a subsidiary of unilever PLCn, its products are spread across discretionary and non-discretionary segments comprising of health, hygiene and nutrition products. HUL strengthened its market leadership despite inflationary headwinds. Nutrition business is expected to post healthy growth as business returned to normalcy post supply chain disruption and also improved in-mobility and improving out-of-home consumption. Company has taken price increases to offset raw material inflation hence the impact on persistent inflation on margins could be limited and company would be able to  maintain the guided margin band of 24-25% for FY22.Company has the right growth matrix like a broad-based portfolio, continued cost savings agenda, growing traction in GSK business, and execution power. Given the volatile market outlook and relatively stable earnings growth trajectory we believe HUL could perform well. At CMP of Rs.2287 we are recommend buy for the target of Rs.2760  with time horizon of next 9-12 months

Outlook:

APL currently dominates the  structural tubes market with 50% share, it is best placed to benefit from the growing Structural Steel Tubes industry as it has first mover advantage and strong brand name. It is expected that realty sector is making a comeback after a decade which will boost revenue for this company as customer are shifting from conventional tubes to structural tubes. Company has taken Several cost-control measures and with the increase in volume operating leverage will also kick in which will lead to improved margin and higher cash generation. Company recently changed their credit policy which has reduce its net working capital and has also reduce their debt quiet significantly. At CMP of Rs.1011 we  recommend buy  the stock for the target price of Rs.1300  with time horizon of next 9-12 months

 

Outlook:

Divi’s is India’s largest API player with a very strong chemistry skills, process skills, manufacturing scale from clinical to commercial qualities, and project execution. They are preferred partner for leading Pharma Companies in the world for custom synthesis . We expect solid CAGR over FY23, led by increased business prospects from CS and Generics, benefits from Molnupiravir supply to the innovator, improved growth in Nutraceuticals, new product additions in the Generics segment, as well as margin expansion on process and productivity improvements.  At current Market price of Rs. 4450 it trade trade at 44x price to Earning on FY23 Earning which is below its long term averages. We recommend buying Divis at current market price for the target of Rs. 5400. Time frame should be 9-12months.

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