)
After last Monday's massive fall in the Indian markets, a lot of quality stocks have fallen significantly. These have healthy growth prospects and many are also a play on an improving macro economy. Not surprisingly, many research houses are recommending that investors selectively pick up good names among these. Here’s a shortlist of the top five stocks, among the most preferred picks of well-known brokerages. Additionally, these are trading in close proximity (six to 15 per cent higher) to their respective 52-week lows. State Bank of India (SBI), ICICI Bank, Larsen and Toubro (L&T), Coal India and Oil and Natural Gas Corporation (ONGC) are the stocks investors can consider at current levels.
COAL INDIA
- The government’s impetus on raising coal production will benefit Coal India, boosting its output in the coming days. Already production is up 10.5 per cent year-on-year at 156.15 million tonnes in April-July, 98 per cent of the target set for the company
- The more profitable e-auction volumes are also increasing regularly
- Though realisations are under some pressure, increasing volumes should offset these
- Analysts at Nomura have tweaked realisation estimates but raised output estimates, arriving at a target price over Rs 400
- Inexpensive valuations, coupled with the improving prospects of power and infrastructure sectors, are key positives
- Value unlocking in subsidiaries like life insurance, as well as their healthy prospects, should aid consolidated performance
- Bottoming out of asset quality pressures, healthy earnings growth and returns ratios should reduce the valuation gap with peers
- The bank's earnings are likely to grow 18 per cent annually over FY15-17, with 200-250 basis points expansion in return on equity likely
- L&T remains the best play as the Indian infrastructure segment recovers, while exposure to markets abroad helps diversify revenue streams
- The company is likely to benefit from order flow in verticals such as defence, shipbuilding, nuclear power, etc, though some of these will accrue only in the longer run
- Order flow and execution is likely to grow in all verticals in the country and operations abroad
- Analysts at IDFC see earnings growing at a compounded annual rate (CAGR) of 25 per cent over FY15-17 as business prospects improve
- Lower crude oil prices have pulled down the stock, as it directly impacts the prospects of subsidiary ONGC Videsh
- Clarity on subsidy sharing in advance will help clear the uncertainties and, hence, prop investor sentiment
- Lower subsidies are already rubbing off well on net realisations, which, along with increasing production, will drive earnings. Analysts peg its earnings to grow at a little over 20 per cent CAGR over FY15-17 assuming crude oil at $55 a barrel
- Further falls in natural gas and crude oil prices to unattractive levels for a prolonged period are key downside risks
- SBI is a direct play on domestic economic recovery, given its strong presence across the country and in business segments
- Healthy capital ratios, stabilising asset quality and competitive lending rates are key positives
- It is among the few public sector banks that have protected its market share even with intensifying competition
- Analysts expect earnings to grow at a CAGR of 22-25 per cent over FY15-17
