The Nifty Smallcap 100 and Nifty Midcap 100 indices gathered 28% and 26%, respectively. Among sectors, PSU Bank index jumped 44% and Realty increased 37% while Oil & Gas index was the only one to end in the negative (-2%).
Going forward, HDFC Securities expects markets to be volatile through the first half of 2024 even as the outcome of state and Central elections will be closely watched, as would the fallout from the two geopolitical events.
“Although the local fund flows have remained strong, we would need a resumption of FPI flows once the global risk appetite revives. We continue to favor domestically oriented businesses and favor opportunities in the sectors such as Materials, Pharmaceuticals, Oil and gas, Small Finance banks, Petrochemicals, consumption, Power EPC and remodeling plays for next year,” HDFC Securities Retail Research said in a report.
With a focus on these themes, the brokerage has released its 10 Diwali stock picks for Samvat 2080.
HDFC Securities Diwali stock picks include Dr Reddy’s Laboratories, Equitas Small Finance Bank, GAIL (India), Godrej Industries, Grasim Industries, Gujarat Alkalies & Chemicals Ltd Chemicals, Indian Oil Corporation, Kalpataru Projects International, Reliance Industries and United Spirits.
These stocks have robust fundamentals and some margin of safety in their valuation to offer superior returns to investors, HDFC Securities Retail Research said.
Dr Reddy’s Laboratories | Shop Range: ₹4,850-5,400 | TP: ₹6,250
HDFC Securities expects Dr Reddy’s US business to grow at a CAGR of 11% over FY23-25E including gRevlimid sales. Overall, it estimates a 10% CAGR in sales led by strong growth in the US and domestic formula business.
Operating margin is expected to remain around 26.5-27.5% behind niche opportunities in the US segment. Net profit is expected to see a 16.5% CAGR led by healthy revenue and strong operating performance over the same period.
The brokerage recommends ‘Buy’ on Dr Reddy’s Laboratories in the band of ₹4,850-5,400 for a target price of ₹6,250 per share till next Diwali.
Equitas Small Finance Bank | Shop Range: ₹82-92 | TP: ₹112
The brokerage has forecast 24% CAGR in net interest income (NII) and 31% in net profit over FY23-25E, while the loan book is estimated to grow at 27% CAGR over the same time frame. As the collection efficiencies improved and economic activities picked up momentum, the asset quality saw a huge improvement.
ROAA is estimated to improve to 2% by the end of FY25E. It could show a steady improvement in return ratios driven by rising advances and contained slippages, the brokerage house said.
It recommends investors to buy the shares in the ₹82-92 band for a target price of ₹112 per share.
GAIL (India) | Shop Range: ₹106-120 | TP: ₹140
GAIL’s leading position in the natural gas transmission business, cost-effective operations, experienced management, decent dividend yield, attractive valuations and sound financing are key advantages offered by the stock apart from decent dividend yield. A strong domestic supply environment, improved margins for business segments and a favorable price scenario of LPG and petrochemicals segments can improve consolidated EBITDA sharply over FY23-25E, HDFC Securities said.
It expects EBITDA and PAT to grow 48% and 46.4% for FY24E, and 13.5% and 13.4% for FY25E, respectively.
Investors can buy the shares in the ₹106-120 band for purpose of ₹140 (10x FY25E EPS & 8.8x FY25E EV/EBITDA) by next Diwali, it said.
Godrej Industries | Shop Range: ₹555-624 | TP: ₹735
While the standalone business faces some pressure in the near term, its consumer products and real estate subsidiaries are doing well and the outlook remains healthy, Retail Research at HDFC Securities said. It expects that value unlocking due to the split between the brothers and holding discount could also narrow.
The brokerage recommends buying the shares in the ₹555-624 band for purpose of ₹735 per share.
Grasim Industries | Shop Range: ₹1,700-1,925 | TP: ₹2,275
The brokerage believes that while Grasim Industries’ standalone business faces some pressure in the near term, its cement and financial services subsidiaries are performing well and the outlook remains healthy.
The company’s accelerated expansion in paints is likely to give it the next stage of growth and may lead to a revaluation of the stock as it lowers the share of commercial businesses in favor of branded paints, it said.
It suggests that investors can buy the shares in the ₹1,700-1,925 band for purpose of ₹2,275 till next Diwali.
Gujarat Alkalis & Chemicals | Shop Range: ₹638-718 | TP: ₹875
With a steady rise in caustic soda prices and lower energy costs, the brokerage house expects the company to register strong earnings growth in FY25E. At CMP, the stock trades at 13x FY25E EPS. Investors can buy the shares in the ₹638-718 band for a target price of ₹875 (16x FY25E EPS) by next Diwali, it said.
Indian Petroleum Corporation | Shop Range: ₹78-90 | TP: ₹103
The value of Indian Oil Corporation’s investments and non-core assets account for almost its entire value. We expect IOCL’s strong earnings momentum to continue in the coming quarters, supported by several drivers, HDFC Securities said.
It expects earnings to continue to improve as stable demand in the petrochemical segment allows for a turnaround. With its broad and superior refining marketing mix, the brokerage firm believes that continued demand for petroleum products and declining oil prices will continue to drive greater profitability.
It suggests buying the shares in the ₹78-90 band for a target price of ₹103 per share.
Kalpataru Projects International | Shop Range: ₹580-660 | TP: ₹795
Kalpataru Projects International is expected to report Revenue, EBITDA and PAT growth at a CAGR of 18%, 27% and 36% over FY23-26E. The stock trades at an attractive valuation of ~9x FY26E EPS, which is at a significant discount to Indian peers. Such a discount could be due to lower contributions from the India region, the brokerage said.
In June 2023, the company’s order book stood at ₹47,332 crore indicating robust visibility of 3.3x of FY23 revenue. The company’s healthy supply pipeline indicates a further positive outlook on the business generation.
Investors can buy the shares in the ₹580- 660 band for a target price of ₹795 (10.5x FY26E EPS) by next Diwali, according to HDFC Securities Retail Research.
Reliance Industries | Shop Range: ₹2,075-2,32 | TP: ₹2,695
Reliance Industries Retail, Telecom, and new energy are poised to become the next growth engines over the next two to three years, given the great technological advancements and ambitious growth targets. The company is expected to report consolidated revenue, EBITDA and PAT CAGR of 13.5%, 12.3% and 10% over FY23-25E, according to HDFC Securities.
It said that investors can buy shares of Reliance Industries in the ₹2,075-2,325 band for purpose of ₹2,695 till next Diwali.
United Spirits | Shop Range: ₹915-1,040 | TP: ₹1,195
United Spirits will continue to focus on driving profitable growth, led by double-digit top line growth; ongoing A&P investments; improving prices and premium mix; and productivity gains, the brokerage said.
Investors can buy the shares in the ₹915-1,040 band for purpose of ₹1,195, it added.