The markets have been moving up relentlessly since the last 10 months taking the benchmark indices up nearly 40 per cent. Though froth has been building up due to exuberance, it could continue for a while longer before a meaningful correction sets in. Finally expectations need to be fulfilled; and we would know the outcome in the next three months running up to the Union Budget.
When markets are driven by liquidity flows which result in momentum building up in a bunch of stocks or specific sectors, it becomes a self-fulfilling prophecy — thus entering a virtuous cycle. The market today is distinctly divided into two sets – those which have moved up sharply – some of them multiple times and those which have been neglected. A sustainable bull market requires a wider participation akin to the one we saw from 2003. The current bull market is yet to get into that orbit.
Stock picking has become hazardous as one has to dilute the parameters to justify a “Buy” at current levels. So I am giving a mixed bag across the spectrum where I find relative value compared to the peers.
Himatsingka SeIde (CMP Rs 91.50)
A well integrated home furnishing player with well accepted brands and distribution network across the globe, has also been a spectacular turnaround story. Though the stock has nearly doubled in the last 10 months, the valuations are still attractive quoting at 7x FY16E EPS Rs 13. The stock can move to Rs 156 which should be a fair value at 12x.
Exide (CMP Rs 170):
exide is an underperforming leader in the storage battery space. No doubt the financial performance of its rival Amara Raja has been much better due to increasing market share and operational efficiency compared to volatile earnings from Exide. The past 2 years could be considered a blip in the leadership of Exide based on superior performance spanning several decades. The turnaround could surprise the markets when Exide puts its act in place.
NTPC (CMP Rs 141):
India’s largest power pr-oducer has been an underperformer during the last few months due to issues related to the power sector. I would buy the stock based on a simple logic: Can India grow at 8% in the next 3 years without the power sector expanding? Will fresh funds be invested in creating capacities if the business is rendered unviable? Once power reforms were announced, this underperformer will turn into an outperformer in the next 2 years.
Pidilite (CMP Rs 479) :
Pidilite is known for its marquee brands and distribution reach, has also been a consistent performer with high margins due to the pricing power it enjoys. The recent fall in the raw material prices has been an added advantage. I expect an EPS of Rs 14.50 for FY16 and if one goes by a comparable PE enjoyed by Asian Paints at 45x, Pidilite could move to Rs 580 at 40x FY16E.
The writer is the managing partner, global wealth management, Edelweiss Financial Services. This newspaper is not liable for investment decisions taken on the basis of these stock tips.
