Article

5 Best Stocks to Invest in Current Volatile Markets

22 Apr 2020 Nikita Bhoota

The Indian stock market is in downward phase. The benchmark indices Nifty 50 and Sensex both have declined 23.8% and 24.3% respectively from March 02, 2020 to April 13, 2020. The spread of coronavirus (Covid-19) epidemic all over the globe and in India is the main reason for the market fall. The Covid19 cases are aggressively increasing in India and have crossed 11,000 mark as per the media reports.  Currently, no country in the world is able to find the vaccine for the disease. Therefore, to control the spread the Government has extended lockdown till 03rd May, 2020. The extended lockdown will continue to affect the economic activity and income of the people. Adding to woes, the crude oil war on increasing production at a time when the demand is low due to Covid19 and issues in the banking sector have hurt investors’ confidence.

Finding out good quality stocks in the market in such a volatile market where investors are liquidating their portfolio even at loss in the fear that market will fall further is a real challenge.  Based on fundamentals, management history, and business prospects, here are some of the cherry-picks that can give consistent returns in the long run.

ICICI Lombard (ILOM)

ICICI Lombard (ILOM) has corrected sharply from its highs, due to broader market sell-off driven by the COVID-19 pandemic. We see a comparatively lower risk to ILOM’s earnings, as it remains relatively insulated from the economic impact of COVID-19. We are positive on the stock as ILOM net beneficiary in the dynamic motor segment. The Structural changes in Motor TP regulations continue to give market share gains to ILOM, especially in OD, due to its strong OEM-dealer relationships. The recent Motor Vehicles Act should result in improved TP loss ratios, but in lower annual price hikes and investment float. Additionally, With GIC Re raising reinsurance rates in various sub-segments, effective Jan-2020, following up on the increase in Apr-2019, we expect Fire to be a key growth driver for ILOM. Health remains a structurally-high growth area, potentially more so after the pandemic, leading to marginal 3.6% GDPI CAGR for ILOM over FY19-21E. The stock trades at 33.1 x FY21E EPS.

Year

GDPI (Rs cr)

PAT(Rs Cr)

EPS(Rs)

PE (x)

FY19

14,488

1,049

23.1

49.6

FY20E

13,948

1,213

26.7

42.9

FY21E

15,546

1,572

34.6

33.1

Source: 5paisa Research

Deepak Nitrite (DNL)

We expect strong topline growth of 29.2% CAGR over FY19-21E driven by growth in the Basic Chemicals and the Fine & Specialty segments. Downstream derivatives of phenol and acetone should start contributing to growth from FY21E. The company continues to invest in R&D, and efforts are underway to launch new fine & specialty chemicals that are agrochemical and pharma intermediates. Further, Management expects DNL to benefit from the unfortunate outbreak of the novel coronavirus, which will likely accelerate the search for non-China suppliers. EBITDA margins are expected to improve 450 bps over FY19-21E due to continuous strength in basic chemicals, Fine and Specialty chemical segment and products business. We see PAT CAGR of 70.2% over FY19-21E. The stock is trades at 12.5x FY21E EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY19

2,699

15.3

173

12.7

36.1

FY20E

4,270

23.0

560

41.1

11.2

FY21E

4,505

19.8

501

36.7

12.5

Source: 5paisa Research

Tata Consumer Products

We are positive on the stock on account market share gains and new launches. Market share gains in India tea are mainly from regional and local players. The company commands 20% market share in tea segment in India.   Moreover, it will also benefit owing to the shift from unorganized to organized sales on the back of premiumisation, strong marketing campaigns (Jaago Re) and higher sales of new variants (Elaichi, Masala, Agni). The increasing trend of Specialty, herbal teas in international market (US, UK, Canada) will also drive future growth. Thus, we expect revenue CAGR of 6.8% over FY19-21E. We expect EBITDA CAGR of 18.5% over FY19-21E due to to favorable commodity prices and improvement in margin of coffee business. We expect PAT CAGR of 15.9% over FY19-21E. The stock is currently trading at 35.1x FY21EPS.

Year

Revenue (Rs cr)

OPM (%)

Net Profit (Rs cr)

EPS (Rs)

PE (x)

FY19

7,251

10.8

408

6.5

47.2

FY20E

7,521

12.6

463

7.3

41.6

FY21E

8,269

13.3

548

8.7

35.1

Source: 5paisa Research

Larsen and Toubro (L&T)

We are positive on the stock on account of robust order book of 306,280cr (2.9x TTM sales) Q3FY20 provides healthy revenue visibility for the next 2 years. Although in near term, we expect L&T to face multiple headwinds that would harm the execution ability of the company. Besides, the recent oil price crash could impact execution of projects in the Middle East, weak macros in the domestic market could slowdown projects, mainly state government, and lastly, the increase in Covid-19 cases could temporarily shut down construction sites. However, its diversified reach enables it to manage risk better. We expect revenue, EBITDA and PAT CAGR of 7.1%, 5.8% and 5.1% respectively over FY19-21E. Recent correction in the stock is an opportunity to accumulate the stock at attractive valuations. The stock currently trades at 10.2x FY21EPS.       

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY19

141,010

12.1

9,300

66.3

13.6

FY20E

149,640

11.7

10,210

72.8

11.9

FY21E

161,840

11.8

10,270

73.2

10.2

Source: 5paisa Research

Quess Corp

We are positive on the stock on account of strong financial position, presence of strong promoter group and attractive valuations. The company has not seen any downsizing of temporary headcount by the clients due to spread of Covid-19. Not a single FTE (full-time equivalent) has so far been de-mobilised by clients. In general staffing, clients are retaining headcount in preparation for recovery, while IT staffing is benefiting from ramp-up at captives. The housekeeping business is steady. In staffing as well as FM, tri-partite agreements imply that Quess has on obligation to retain FTEs in the event of down-sizing by clients. However, the early closure of colleges will impact F&B revenues in the short run. We consider the recent correction in the stock to accumulate the stock for the long run. The stock is currently trading at 8.2x FY21EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY19

8,527

5.4%

256

17.3

12.4

FY20E

11,015

6.2%

115

7.8

27.5

FY21E

12,867

6.4%

388

26.2

8.2

Source: 5paisa Research

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5 Best Stocks to Invest in Current Volatile Markets

22 Apr 2020 Nikita Bhoota

The Indian stock market is in downward phase. The benchmark indices Nifty 50 and Sensex both have declined 23.8% and 24.3% respectively from March 02, 2020 to April 13, 2020. The spread of coronavirus (Covid-19) epidemic all over the globe and in India is the main reason for the market fall. The Covid19 cases are aggressively increasing in India and have crossed 11,000 mark as per the media reports.  Currently, no country in the world is able to find the vaccine for the disease. Therefore, to control the spread the Government has extended lockdown till 03rd May, 2020. The extended lockdown will continue to affect the economic activity and income of the people. Adding to woes, the crude oil war on increasing production at a time when the demand is low due to Covid19 and issues in the banking sector have hurt investors’ confidence.

Finding out good quality stocks in the market in such a volatile market where investors are liquidating their portfolio even at loss in the fear that market will fall further is a real challenge.  Based on fundamentals, management history, and business prospects, here are some of the cherry-picks that can give consistent returns in the long run.

ICICI Lombard (ILOM)

ICICI Lombard (ILOM) has corrected sharply from its highs, due to broader market sell-off driven by the COVID-19 pandemic. We see a comparatively lower risk to ILOM’s earnings, as it remains relatively insulated from the economic impact of COVID-19. We are positive on the stock as ILOM net beneficiary in the dynamic motor segment. The Structural changes in Motor TP regulations continue to give market share gains to ILOM, especially in OD, due to its strong OEM-dealer relationships. The recent Motor Vehicles Act should result in improved TP loss ratios, but in lower annual price hikes and investment float. Additionally, With GIC Re raising reinsurance rates in various sub-segments, effective Jan-2020, following up on the increase in Apr-2019, we expect Fire to be a key growth driver for ILOM. Health remains a structurally-high growth area, potentially more so after the pandemic, leading to marginal 3.6% GDPI CAGR for ILOM over FY19-21E. The stock trades at 33.1 x FY21E EPS.

Year

GDPI (Rs cr)

PAT(Rs Cr)

EPS(Rs)

PE (x)

FY19

14,488

1,049

23.1

49.6

FY20E

13,948

1,213

26.7

42.9

FY21E

15,546

1,572

34.6

33.1

Source: 5paisa Research

Deepak Nitrite (DNL)

We expect strong topline growth of 29.2% CAGR over FY19-21E driven by growth in the Basic Chemicals and the Fine & Specialty segments. Downstream derivatives of phenol and acetone should start contributing to growth from FY21E. The company continues to invest in R&D, and efforts are underway to launch new fine & specialty chemicals that are agrochemical and pharma intermediates. Further, Management expects DNL to benefit from the unfortunate outbreak of the novel coronavirus, which will likely accelerate the search for non-China suppliers. EBITDA margins are expected to improve 450 bps over FY19-21E due to continuous strength in basic chemicals, Fine and Specialty chemical segment and products business. We see PAT CAGR of 70.2% over FY19-21E. The stock is trades at 12.5x FY21E EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT(Rs Cr)

EPS(Rs)

PE(x)

FY19

2,699

15.3

173

12.7

36.1

FY20E

4,270

23.0

560

41.1

11.2

FY21E

4,505

19.8

501

36.7

12.5

Source: 5paisa Research

Tata Consumer Products

We are positive on the stock on account market share gains and new launches. Market share gains in India tea are mainly from regional and local players. The company commands 20% market share in tea segment in India.   Moreover, it will also benefit owing to the shift from unorganized to organized sales on the back of premiumisation, strong marketing campaigns (Jaago Re) and higher sales of new variants (Elaichi, Masala, Agni). The increasing trend of Specialty, herbal teas in international market (US, UK, Canada) will also drive future growth. Thus, we expect revenue CAGR of 6.8% over FY19-21E. We expect EBITDA CAGR of 18.5% over FY19-21E due to to favorable commodity prices and improvement in margin of coffee business. We expect PAT CAGR of 15.9% over FY19-21E. The stock is currently trading at 35.1x FY21EPS.

Year

Revenue (Rs cr)

OPM (%)

Net Profit (Rs cr)

EPS (Rs)

PE (x)

FY19

7,251

10.8

408

6.5

47.2

FY20E

7,521

12.6

463

7.3

41.6

FY21E

8,269

13.3

548

8.7

35.1

Source: 5paisa Research

Larsen and Toubro (L&T)

We are positive on the stock on account of robust order book of 306,280cr (2.9x TTM sales) Q3FY20 provides healthy revenue visibility for the next 2 years. Although in near term, we expect L&T to face multiple headwinds that would harm the execution ability of the company. Besides, the recent oil price crash could impact execution of projects in the Middle East, weak macros in the domestic market could slowdown projects, mainly state government, and lastly, the increase in Covid-19 cases could temporarily shut down construction sites. However, its diversified reach enables it to manage risk better. We expect revenue, EBITDA and PAT CAGR of 7.1%, 5.8% and 5.1% respectively over FY19-21E. Recent correction in the stock is an opportunity to accumulate the stock at attractive valuations. The stock currently trades at 10.2x FY21EPS.       

Year

Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)

FY19

141,010

12.1

9,300

66.3

13.6

FY20E

149,640

11.7

10,210

72.8

11.9

FY21E

161,840

11.8

10,270

73.2

10.2

Source: 5paisa Research

Quess Corp

We are positive on the stock on account of strong financial position, presence of strong promoter group and attractive valuations. The company has not seen any downsizing of temporary headcount by the clients due to spread of Covid-19. Not a single FTE (full-time equivalent) has so far been de-mobilised by clients. In general staffing, clients are retaining headcount in preparation for recovery, while IT staffing is benefiting from ramp-up at captives. The housekeeping business is steady. In staffing as well as FM, tri-partite agreements imply that Quess has on obligation to retain FTEs in the event of down-sizing by clients. However, the early closure of colleges will impact F&B revenues in the short run. We consider the recent correction in the stock to accumulate the stock for the long run. The stock is currently trading at 8.2x FY21EPS.

Year

Net Sales (Rs Cr)

OPM (%)

PAT (Rs Cr)

EPS (Rs)

PE (x)

FY19

8,527

5.4%

256

17.3

12.4

FY20E

11,015

6.2%

115

7.8

27.5

FY21E

12,867

6.4%

388

26.2

8.2

Source: 5paisa Research