Analysts’ Top Stock Bets For 2018

India’s benchmark Nifty 50 index returned 28 percent gains in 2017, the best since 2014, as equities scaled new peaks backed by rising domestic flows. As we begin a new year, here are some of the stocks brokerages are bullish on for 2018...

Credit Suisse

State polls will gain more attention as the 2019 general election gets closer, driving market volatility, the brokerage said. It expects double-digit earnings growth in the next financial year as valuations are not expensive compared to global equities. Here are its top picks for 2018:

State Bank of India

• Merger with associate banks to increase loan growth.
• Expect lower slippages and normalisation of credit cost.
• Gains from sale of life insurance to increase stressed asset cover to 34 percent.

Oil and Natural Gas Corporation

• Benefits from increase in oil prices.
• Expect earnings to grow at an annualised rate of 12 percent in the financial years through March 2020, helped by higher oil and gas prices.
• Oil prices around $60 a barrel a sweet spot.

JM Financial

Volatility is expected to continue in 2018 after rate hikes by the U.S. Federal Reserve, Brexit developments and higher crude oil prices. Indian equity markets are expected to face multiple headwinds despite a global macro upswing, strong flows, higher private capex, normalisation post GST and demonetisation, and a favourable political backdrop. The brokerage expects Nifty 50 to make modest gains in 2018. Here are its top picks…

L&T Finance Holdings

• Focus on retail finance to improve return ratios.
• To improve capital allocation by sale of non-core assets.
• Lower costs, higher fee income to drive profitability.

Tata Motors

• A rise in demand to be supported by new launches and higher output.
• A strong growth in China joint venture volumes; sales recover in the U.S.
• JLR maintains medium-term target of 8-10 percent EBIT margin.

PNB Housing Finance

• Has among the lowest funds costs due to a high credit rating profile.
• Expanding presence in tier-II and III cities in southern and western India.
• Expect earnings to grow at an annualised rate of 35 percent over the next three years.

Federal Bank

• Expect asset quality and slippages to improve as credit cost lowers.
• Digital initiatives helping to improve pan-India footprint.
• Loans outside Kerala growing at a faster pace.

IndusInd Bank

• Earnings to rise at an annualised rate of 28 percent in the next two years on loan growth and improving costs.
• Focus on digital initiatives to drive growth in the second half of 2017-18.
• Expect net interest margins and cost-to-ratio to improve after merger with Bharat Financial.

HDFC Securities

The markets will watch out for earnings upgrade as the impact of demonetisation, Goods and Services Tax and Real Estate Regulation Act fades, along with surplus liquidity. Current valuations could weigh on the bull run next year, it said. HDFC remain bullish on metals, pharma, information technology, cement and infrastructure. Here are its top picks:

Jagran Prakashan

• Digital advertising is the fastest growing vertical.
• Upcoming eight state elections will lead to higher print advertising.
• Expect revenue to grow at an annualised rate of 8.2 percent over next two years.

South Indian Bank

• Well capitalised with capital adequacy ratio of 12.4 percent as of March.
• Technology banking to reduce costs and increase efficiency, revenue and margins
• Expect net interest income to grow at 8.7, 39.2 and 29.2 percent each in the financial years through March 2020.

NCC Ltd.

• Got fresh orders worth Rs 14,900 crore from the government in seven months to October.
• On track to reduce debt by monetising land
• Expect return on equity of 8.5, 6.7 and 7 percent in the current and next two financial years, respectively.

Axis Direct

InterGlobe Aviation

• To capitalise on domestic passenger traffic growth.
• One of the lowest operating costs and healthy utilisation levels.
• A large aircraft order and asset-light strategy of sale and lease-back helps to maintain a healthy balance sheet.

SBI Life Insurance

• Largest private life insurer by new business premium for seven years.
• Among the largest distribution model through bancassurance and agency network.

Godrej Agrovet

• Expects growth in under-penetrated businesses like animal feed, besides dairy, poultry and agri-inputs.
• Cash-generating palm oil plantations business expected to grow at 15 percent annually over the next decade.
• Expect profit to grow at an annualised rate of 20 percent in the financial years through March 2020.

Endurance Technologies

• The largest two-wheeler auto parts maker with high economies of scale.
• Expect volume growth driven by supplies to Hero Group and Honda Motorcycles and Scooters India Ltd. over next three to five years
• Expect return on capital employed to improve to 34 percent in three years from 21 percent.

Karvy Investments

India ranks among the top three global indices despite demonetisation and GST-related hiccups. Structural reforms during the year would propel the growth momentum next year, the brokerage said. Increasing allocation towards financial assets remains encouraging, it said. Here are its top picks…

Yes Bank

• Expect net interest margin to improve to 3.6 percent in the next two years from 3.2 percent in March 2017.
• Current and savings account deposits to touch about 38 percent by the next financial year.
• Asset quality divergence remains a key challenge.

ICICI Bank

• Strong retail franchise, leadership in technology to drive growth.
• A diversified loan portfolio with stable net interest margins.
• Expect asset quality to improve by March 2020.

State Bank of India

• Expected to leverage synergies of merger with associates.
• Loan book to grow at an annualised rate of 10 percent in next three years.
• Asset quality is expected to improve in the next few quarters due to lower retail slippages, higher recoveries.

ITC

• Expect realisation from cigarette segment to pick up due to increased prices.
• Aggressive expansion and focus on packaged food segment.
• Investment in new 40 hotels may drag return ratios.

Cadila Healthcare

• Well-positioned to monetise its robust U.S pipeline.
• Expect increased revenue from Tamiflu suspension and capsules.

The brokerage also came out with a separate list of value investing stocks.

Natco Pharma

• Expect specialty generics in the U.S. to drive profits.
• Recent fund-raise of Rs 915 crore to help build complex generic pipeline for the long term.
• Limited competition in large products will lead to smaller price erosion and higher cash flows.

Mirza International

• Re-entry into women footwear by end of current financial year will aid demand.
• Expect operating margins to expand with growth in domestic business.
• Branded sales would take over exports on increased online sales.

Visaka Industries

• A strong presence in building products and yarn.
• Tax rate came down from 28 percent to 18 percent.
• Expect sales to grow at an annualised rate of 7.9 percent over the next three years.

Tata Sponge Iron

• Market leader, zero debt and high cash balance
• Revival in steel sponge demand on higher infrastructure spending and improved global situation.

Greaves Cotton

• A cost leader with partnership over 35 auto manufacturers.
• New launches and services to help growth in domestic market; new geographies to help add customers.