CLSA Says These Nine Stocks Will Benefit From Modi’s Return To Power
Global brokerage CLSA is betting on large-cap stocks in the run up to the general election next year, as it believes Prime Minister Narendra Modi-led Bharatiya Janata Party would return to power.
However, it’s unlikely that the party would get an absolute majority like in 2014 and would only be able to win with coalition partners, CLSA said in a report.
While the equity market anticipates a long winter for Congress (Party) and is already building in a Modi win, time will tell whose plot armour is the strongest. Meanwhile, we advocate a large-cap portfolio that comprises rural plays, housing and exporters.Mahesh Nandurkar, India Strategist, CLSA
CLSA’s analysis of both the leading parties’ manifestos suggests a consensus exists on several main policies, such as affordable housing, farmer welfare, job creation and infrastructure. Current positive trends in housing and rural recovery should play out irrespective of the outcome, said Nandurkar.
Here are CLSA’s top nine picks going into elections next year:
Dabur India Ltd.
- The company is a key beneficiary of a pick-up in rural consumption amid lower competitive intensity.
- Continue to benefit from changing consumer preferences for Ayurveda/natural products.
- Sharpened its focus on growth and pace of innovation.
- Growth will be aided as pace of new launches are set to accelerate.
Godrej Properties Ltd.
- The company has a strong nationwide presence with leveraging on group resources.
- Pre-sales reached new highs in the last financial year, as it embarked on new project additions.
- Impressive corporate governance, professional management and track record of on-time completions.
- Healthy core and attractive valuations can drive rerating for the stock.
- Well positioned to benefit from mortgage-demand uptick in affordable and mid-income housing.
- Recent hikes in lending rates can help manage funding costs concerns.
- Spreads to stay stable despite rise in funding costs.
IndusInd Bank Ltd.
- Better CASA (current account savings account) ratio and expansion into new retail segments will drive growth for the lender.
- Scale up of Bharat Financial Inclusion will be key to profitability.
- CASA scale-up helping to grow and de-risk.
- The IT major has an improving demand outlook, better execution, and reasonable valuations.
- Renewed focus on execution drives up client mining and captures growth.
- Focus on digital services has streamlined efforts.
- Cigarette recovery and reasonable valuations provide an opportunity for the company.
- Cigarette volumes and EBIT growth set to recover; Concerns over cigarette taxes are exaggerated.
- Valuation of 29x one-year forward earnings at a significant discount to peers.
- FMCG business is gaining scale though negligible contribution to profits.
Mahindra & Mahindra Ltd.
- The company is benefitting from strong tractor, light commercial vehicle demand, and new sports utility vehicle launches.
- Outlook for rural demand continues to remain strong, despite a below-normal monsoon.
- SUV volumes bottoming out and the upcoming launch of a new MPV has the potential for growth.
Maruti Suzuki India Ltd.
- Successful new products in recent years have led to the company’s strong India franchise becoming even more solid.
- Differentiated sales strategy has boosted confidence in the sustainability of its dominant market share.
- Competition is also easing as several global OEMs are focussing back on their key markets rather than on India.
- Some costs pressures but has levers to offset.
Sun Pharmacuetical Industries Ltd.
- Specialty pipeline monetisation progressing well for the company – three launches in FY19.
- Strong strategy execution in other verticals apart from the U.S. can drive earnings growth.
- Resolution of regulatory issues with the U.S. FDA.