10 firecracker largecaps that deliver bang: Brokerage picks for Samvat 2080

Amid concerns over small and midcap valuations, brokerages suggest navigating the investment landscape like a well-timed fireworks display, favouring the brilliance of largecap stocks

In Samvat 2079, the National Stock Exchange (NSE) Nifty Smallcap and Nifty Midcap outperformed, recording gains of 38 per cent and 32 per cent, respectively. The NSE Nifty50 also saw double-digit growth but lagged at 10.5 per cent.

Despite global and domestic disruptions like the Russia-Ukraine war, the Israel-Hamas conflict, high global inflation, rising crude oil prices, a very high US 10-year bond yield, and a consumption slowdown, the market thrived.

Top gainers in Samvat 2079 included Nifty PSU Bank (42 per cent increase), Nifty Realty (37 per cent), Nifty Auto (18 per cent), and Nifty FMCG (15 per cent). Resilient economic conditions, robust corporate earnings, foreign portfolio investor inflows (March–August), high mutual fund systematic investment plan levels, and increased retail participation fuelled market growth.

Motilal Oswal attributed the market’s strength to these factors, along with a moderation in inflation and expectations of stabilised global interest rates.

Despite concerns about small and midcap stock valuations, brokerages suggest largecap companies for a better reward/risk balance due to more reasonable valuations.

Kotak Securities emphasises the value in selected largecap stocks, particularly in the banking and financial services sector, compared to rich valuations in the consumption, investment, and outsourcing sectors.

Equity research firms advise utilising any corrections in the market to acquire quality stocks at reasonable valuations for long-term holding.
 

Looking ahead to Samvat 2080, here are 10 largecap stocks identified by brokerages as top choices for the coming year, recommended by at least two brokerages, with expectations of delivering double-digit returns.

Cipla India

For the third consecutive quarter, Cipla put out a strong performance, beating Street expectations

The pharmaceutical major also increased overall operating profit margin guidance from 23 per cent earlier to 23–24 per cent for 2023–24, with a bias towards the higher-end

Cipla’s robust abbreviated new drug application pipeline with complex products (inhalers, peptides, and injectables) should drive consistent growth in the US generics segment

The US business, coupled with a steady outperformance in the branded generics market in India and South Africa, would enable 19 per cent compound annual earnings growth over 2022–23 through 2024–25, according to Motilal Oswal

While brokerages are positive about the company’s prospects, any potential stake sale by the promoter group remains a key monitorable, says Kotak Securities

 

Larsen & Toubro

Sharekhan says Larsen & Toubro (L&T) is India’s largest engineering, procurement, and construction (EPC) conglomerate with a major presence in engineering, construction, manufacturing, information technology services, and financial services and is the best proxy for domestic capital expenditure (capex)

JM Financial believes L&T is well positioned to benefit from sustained momentum in government-funded domestic infrastructure projects, order inflow from West Asia, and a pick-up in private capex

Its core EPC business had an all-time high order book of around Rs 4.1 trillion, more than twice its latest trailing 12-month revenue

L&T expects 12–15 per cent revenue growth and 10–12 per cent growth in the order book in 2023–24, while the core business operating profit margin is expected to be 9 per cent (up 40–50 basis points year-on-year)

JM Financial expects L&T’s earnings per share to grow at a compound annual growth rate of 27 per cent over 2022–23 through 2024–25 and sees a 13 per cent upside 

 

DLF

The real estate major has guided for bookings of over Rs 12,000 crore for 2023–24 (FY24) on the back of upcoming launches, significant inventory, and high demand

It has a launch pipeline of 11.2 million square feet (msf) with a sales potential of Rs 19,710 crore for FY24

The company is re-entering Mumbai with a slum redevelopment project with a planned development of 3-3.5 msf

Its rental portfolio is gradually witnessing rising physical occupancies while focusing on doubling its retail portfolio over the next four to five years, says Sharekhan

DLF’s leadership in the Delhi-National Capital Region, a vast residential project pipeline, a significant rental portfolio, ample land reserves with low carrying costs, and favourable market conditions create a promising environment for substantial growth, says Anand Rathi

 

Dalmia Bharat

Motilal Oswal expects Dalmia Bharat to benefit from a robust increase in cement prices, particularly in the East, where prices are up by Rs 40–50 per bag, triggered by an improvement in demand

The brokerage Dalmia Bharat sales volume to grow at an 11 per cent compound annual growth rate in 2022–23 (FY23) through 2025–26 (FY26), and earnings before interest, tax, depreciation, and amortisation per tonne to rise to Rs 1,250 in FY26 from Rs 1,045 in 2023–24, driven by operating efficacy and softening fuel prices

Kotak Securities expects Dalmia Bharat to report strong growth, led by a combination of organic and inorganic expansions over FY23–FY26

Kotak Securities says that Dalmia Bharat continues to enjoy a strong balance sheet with limited leverage. It expects leverage to remain comfortable, and healthy operating cash flow to support growth in capital expenditure

 

 

Reliance Industries

JM Financial believes that Reliance Industries’ (RIL’s) net debt concerns are overdone, and it has industry leadership across businesses to drive robust 14–15 per cent compound annual growth rate growth in earnings per share over the next three to five years

 According to Cholamandalam Securities, a large part of capital expenditure for the 5G rollout is done, and going forward, higher operating leverage and lower finance costs will add to margins and result in higher profitability

Cholamandalam Securities expects the net profit to compound at an annual rate of 12–15 per cent over the next three years, led by Jio Platforms, retail and gas divisions

According to Kotak Securities, the outlook for each of RIL’s key segments remains robust, and the sum-of-the-parts-based fair valuation of RIL is Rs 2,725 per share, 19 per cent higher than its current market price

Titan Company

Titan Company is one of the top players in the organised jewellery sector, with a market share of 7 per cent

The company has guided for the jewellery revenue to be 2.5 times in five years and Rs 10,000 crore of consumer spending in watches and wearables by 2025–26 (FY26)

Titan is expected to expand its share by aggressively ramping up its network, even as smaller players struggle with regulatory headwinds
 

Emerging businesses, fragrances and fashion accessories, and Indian dress wear are expected to record double-digit growth, says Motilal Oswal

Prabhudas Lilladher expects premium valuations to sustain, given the strong growth outlook and emerging lifestyle play. It has pegged the company’s earnings growth at 17 per cent over 2022–23 through FY26

 

State Bank of India

According to Motilal Oswal, State Bank of India (SBI) has strengthened its balance sheet by creating higher provisions. It raised its provision coverage ratio (PCR) to 92 per cent in the second quarter of 2023–24 (FY24) and held a higher (99.5 per cent) provision coverage on corporate non-performing assets

Motilal Oswal says that among public sector banks, SBI remains the best play, with a healthy PCR, Tier-I capital of around 12 per cent, a strong liability franchise, and improved operating profitability

JM Financial says that SBI’s core fundamentals continue to be stable, while delivery on the growth front, along with sustained margins and controlled credit costs, should drive movement in the stock

Motilal Oswal Securities expects a 22 per cent upside in SBI share price in the next 12 months from its current market price of Rs 574

Mahindra & Mahindra

Mahindra & Mahindra (M&M), which is akey player in the large utility vehicle (UV) and tractor market, posted its highest-ever quarterly volumes in the second quarter of 2023–24 at 212,000 units, representing an increase of 18 per cent year-on-year

The company has a 41.6 per cent market share in tractors and is the market leader in India

M&M is expected to maintain its share with new tractor models such as Oja, Swaraj Target, and Naya Swaraj, say analysts

Demand for its UV portfolio remains strong, with 286,000 outstanding bookings. Motilal Oswal expects a 16 per cent annual volume growth in passenger UVs over 2022–23 through 2024–25

M&M has one of the highest exposures to the rural market, which accounts for 65 per cent of its volumes. This market is likely to recover with an improvement in rural cash flows

Maruti Suzuki India

Maruti Suzuki India is the country’s largest passenger vehicle maker, with a market share of about 43 per cent and a large portfolio ranging from compact to utility vehicles with multiple fuel options

The company has been revamping its sport utility vehicle (SUV) portfolio, including new launches, which have led to a doubling of the SUV market share to 32 per cent as compared to a year ago

New launches, an improving supply chain, robust industry demand, and higher selling prices provide good revenue visibility in the near to medium-term

Revenue is expected to grow by 13 per cent annually over the next three years

Margins are expected to improve by 350 basis points over 2022–23 through 2025–26, led by a shift towards higher-priced SUVs, stable input costs, price increases, and higher capacity utilisation

The stock is currently available at an attractive valuation and a favourable risk/reward ratio, says Religare

Hindustan Aeronautics

The largest listed player in the defence sector, Hindustan Aeronautics is the sole primary supplier of India’s military aircraft and is a big beneficiary of the government’s focus on the indigenous manufacture of defence aircraft

The public sector company has a robust order book of Rs 81,000 crore, and the order pipeline is strong at over Rs 2 trillion. Its book-to-bill ratio is over three times

Operating leverage will kick in as capacity utilisation levels rise on the back of better execution of a large order book

Profit has compounded at an annual rate of 24 per cent over the past five years, and a similar trend is expected over the next couple of years, says Cholamandalam Securities

The company is net debt-free with cash per share of about Rs 300; its return on equity is high at over 27 per cent