Goldman Sachs Lists Buy And Sell Stock Ideas Amid Market Downcycle

Goldman Sachs Group Inc. expects a deeper global recession and a significant contraction in domestic activities in India as the whole world comes to a virtual standstill amid the new coronavirus pandemic.

The macro backdrop in India remains challenging in the near term, given uncertain and volatile economic activities, as well as Covid-19-related business disruptions, the global investment firm said in a note.

Last week, Goldman Sachs even downgraded India by a notch to marketweight from overweight within Asia, citing delayed recovery of the continent’s third-largest economy among peers and expensive valuations.

The novel virus has stalled global trade and International Monetary Fund has declared a recession. In India, it disrupted an already slowing economy as the nation entered into the world’s harshest lockdown to tackle the outbreak. Domestic equities tracked the worst global selloff in more than a decade before recovering some losses as large economies announced stimulus.

The pathogen has so far infected more than 2.7 million people worldwide, including over 190,000 deaths. In India, the number of Covid-19 cases exceeded 23,000 and while over 700 succumbed to the virus.

Against this backdrop, Goldman Sachs lists eight India stocks that it thinks are ‘buy’ ideas and four ‘sell’ calls.

Bullish Bets

Reliance Industries

• Markets discounting trough valuation multiples on mid-cycle energy business earnings.
• Significant step-up in free cash flow even under the current challenging macro environment.
• Quarterly earnings where delivery could be better than investor expectations.
• Rapid earnings recovery path ahead for energy/retail, while telecom earnings will be the most defensive.

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HDFC Bank

• Prime beneficiary of consolidation
• Bank continues to benefit from scale and digitisation
• Strong operating profitability to help absorb credit cost surge
• Deeper distribution network and strong liability franchise
• Slippages likely to touch peak levels but credit costs manageable
• Trading at an attractive valuation

Also Read: HDFC Bank’s Next CEO: Know The Contenders

Bharti Airtel

• Forecasts a multi-year double-digit Ebitda growth
• Free cash flow to turn positive; strong balance sheet
• Resolution of the adjusted gross revenue dispute and tariff hikes are key catalysts

Infosys

• Expects V-shaped recovery with increasing reliance on digital technologies
• Sharp focus on digital solutions to drive demand
• EBIT margins to see 130-basis-point revival over FY20-23
• Strong balance sheet will likely help tide over the current demand crisis
• Best large-sized IT service vendor to manage both demand- and supply-side constraints

Also Read: Why 2020 Could Be Indian IT’s Worst Year Yet

Power Grid

• Attractive valuation; resilient earnings and higher payouts
• Stable earnings growth and higher dividend payout ratio to continue
• Regulated utilities tend to be viewed as providing a relative safe haven

Mahindra & Mahindra

• Management under the leadership of its new CEO appears to be addressing investor concerns
• Capping of investments in loss-making SsangYong Motors and break-even target of FY21 for Mahindra USA
• Significant developments aimed at plugging the company’s cash leakage
• Improving its capital efficiency and shareholder returns
• Valuations are attractive

Eicher Motors

• Valuation not reflective of multiple catalysts
• Structural premiumisation story for India’s two-wheeler market and increasingly global markets
• Shift towards personal commuting can also aid quicker volume recovery
• Lowest dealer inventory and upcoming launch of the new 350cc platform are triggers

Apollo Hospitals

• Strong execution at more than 10 new hospitals gives confidence
• Apollo Proton Center (cancer care) will likely remain a medium term earnings driver
• Completion of the Apollo Munich transaction on Jan. 9 enables promoters to cut pledged shares
• Risk reward for Apollo hospitals looks attractive

Bearish Calls

Sun Pharmaceutical Industries

• Disappointing performance in specialty assets
• U.S. generic business led by Taro under pressure
• Margin headwinds
• Risk reward for Sun Pharma is skewed to the downside

Dabur India

• Juices, oil and even discretionary healthcare under pressure
• Peak margins indicate limited upside
• International business to see growth headwinds
• Remain concerned about Dabur’s competitive positioning post lockdown
• Expensive valuations

Also Read: How Covid-19 May Shape Consumer Goods Industry

Jubilant Foodworks

• Competition from aggregators in a weak demand environment
• Forecasts a significant slowdown in store rollout in FY21
• High fixed costs
• Sees a significant impact from the effects of the Covid-19 lockdown

IDFC First

• Asset quality concerns and lag in deposit growth
• Potential asset quality issues and challenge on deposit front
• Declining common equity tier-1 ratio is alarming