Top Emerging Stocks For 2021

Top Emerging Stocks For 2021
Top Emerging Stocks For 2021

Equity markets posted strong gains in Feb 2021 driven by a pro-growth and capex-driven Budget, positive global cues, US stimulus and rebound in GDP data. There was some selling in the latter part of the month due to rising global bond yield, commodity prices (including crude) and rising coronavirus cases in India.

Overall, Nifty gained 6.6% MoM in Feb’21, crossing the 15k mark for the first time. The broader market continued to outperform with Nifty Midcap 100 / Smallcap 100 indices up 11.3% / 12.2%, respectively.

FII inflows were robust at Rs 21,960 crore (including primary market activity). DII net sold Rs 11,970 crore sharply down from Rs 37,300 crore in Dec’20 and Rs 48,340 crore in Nov’20.

The Indian economy came out of a technical recession in 3QFY21 with Real GDP growing 0.4% YoY, up sharply from -24.4% in Q1 and -7.3% in Q2. Festive season demand, coupled with the reopening of the economy, facilitated this recovery. Even the PMI Services data expanded for the fifth straight month while the manufacturing PMI data was stable. The GST collections too crossed the Rs 1 lakh crore mark for the fifth month in a row in February. However, global 10-year bond yields have risen sharply in Feb’21 on the back of rise in inflation expectations. Bond yields in India too are up around 33bps in the month of February. This has led to huge volatility in the market.

The government’s focus on fiscal expansion and capex spending augurs well for the revival of the long-anticipated private investment cycle. Nifty is witnessing rotation from high PE stocks to cyclical/value plays in Feb’21. Metals, Cement, Oil & Gas, PSUs outperformed Consumer, Private Financials in the Nifty. Metals may be best positioned for global reflationary rally and rise in bond yields. PSUs outperformed in month of Feb’21 and saw big gains post Union Budget announcement on privatization.

Here are a few of the best stocks to buy in India for the long term.

Disclaimer: This is not a recommendation. The list is for information only.


Reliance Industries

Reliance Industries has been the first to achieve the feat of a new milestone in market capitalisation; first to reach Rs 10 lakh crore, Rs 11 lakh crore and Rs 12 lakh crore. RIL started as a textiles company in the 1950s and then diversified into multiple business channels. Currently, the company has oil and gas, refining and petrochemicals as its core businesses. Other businesses include retail, telecom, media and many other subsidiaries. RIL is one of the top 10 stocks to buy for long term.

Larsen & Toubro

L&T is a big beneficiary of the various infrastructure proposals announced in the recent Budget and the company has not only had a great execution history but has also exhibited financial strength and created value over the years. The company has delivered ROEs of 14% consistently over the last 10 years with operating margins of over 15% over this period. Yet, it continues to trade at attractive valuations with a PE under 15x, making it an attractive value-buy.

HDFC Bank

HDFC Bank, one of the HDFC twins, was set up in 1994 and promoted by HDFC. Since its inception, Aditya Puri had been leading the bank as its managing director and became the longest-serving MD of a private bank. He was replaced by Sashidhar Jagdishan in 2020.More than 50% of the bank’s loan book comes from retail loans, which many analysts think is the reason behind its success. In the last eight quarters, since the first quarter of FY 20-21, the net NPA ratio of the bank has been less than 0.5% of its advances. In the July to September quarter, its net NPA ratio was 0.17% of its net advances.  Its net profit has risen at a CAGR of 16.28% in the past five fiscal years.

The bank’s businesses are in retail banking, wholesale banking and treasury. This bank is also one of best stocks to buy for 2021 in india.

Kotak Mahindra Bank

Kotak Mahindra Bank started as Kotak Mahindra Finance Ltd., a non-banking finance company and it became the first NBFC in India to receive a banking license from RBI. After becoming a full-fledged bank in 2003, it has branched into four units; consumer banking, corporate banking, commercial banking and treasury. The net NPA ratio of this private lender has been constantly reducing: 1.26% of net advances at the end of March 2017 whereas 0.71% at the end of the previous financial year.

SBI Life Insurance

Insurance is another theme which has picked up steam quite recently and has huge growth opportunities given its underpenetrated nature. After LIC, SBI Life Insurance is among the best private insurance player with a leading APE growth (20%+). The company commands strong market share and continues to gain as it offers a multitude of products. With FDI limits in insurance now extended, players like SBI Life are bound to be at an advantage.

CDSL

As the lockdown forced many to stay at home, demat accounts have seen a surge in the past year. With this rising interest in the stock market, CDSL as a depository will continue to upscale and benefit. Being in a duopoly with NSDL, CDSL has created a strong market for itself and will continue to gain revenue as markets mature and volumes rise.

A basket of 10 fundamentally sound stocks could do the trick in making wealth in the long term. As Philip Fisher says, “Usually a long list of securities is not a sign of the brilliant investor, but of one who is unsure of himself.” Keeping this philosophy in mind, investors should stay invested and stay safe in this pandemic.

Dr Reddy’s

Now, with the rise in Covid-19 cases and need for medical support, demand for drugs has skyrocketed and boosted sales of players like Dr Reddy’s who has been a consistent performer by delivering stable net profit growth at 14% CAGR over the last 10 years. Pharma stocks have been underperformers since the past few years and the with a number of tailwinds on their side currently, things seem to be rosy especially for this stock.

Bharti Airtel

Airtel was established in July 1995 after Mittal secured a place in the spectrum auctions. Apart from its prepaid, postpaid and broadband services, airtel was the first company to set up a payments bank in India.

In recent times, Airtel also overtook Jio in terms of adding new subscribers on a monthly basis. 

Reliance Jio added 2.2 million subscribers and Bharti Airtel added 3.7 million subscribers in October 2020. In September as well, Airtel added 2.3 million subscribers whereas Jio added 1.46 subscribers. However, Jio presently retains the highest market share in the industry, 35.28% while Airtel is at 28.68%.


Hindustan Unilever

HUL is one of the largest FMCG companies in India. Some of the brands under HUL are Glow & Lovely (erstwhile Fair & Lovely),  Lifebuoy, Clinic Plus, Vim Bar, Bru Coffee and many others. The company was founded in 1933. In the past 10 years, the company has outperformed Sensex by giving more than 680% returns as on January 11, 2021, whereas Sensex has returned around 156.31% in the same period.  Its net profit has grown at a CAGR of 10.28% in the last five financial years.

 ICICI Bank

ICICIBC reported a strong 3QFY21, led by robust operating performance, while strong asset quality trends enabled decline in provisioning expenses. Loan growth is showing a strong revival in both Wholesale and Retail, with disbursement in many business segments surpassing pre-COVID levels. Asset quality remains under control.Provision coverage remains best in the industry and the bank holds additional unutilized COVID provisions of INR64.7b. Liability franchise continues to improve with cost of deposits declining to 4%, while the Balance Sheet remains fairly liquid and thus conducive for growth.

We expect RoA/RoE to improve to 1.8%/15.2% for FY23E. Maintain Buy.

 Infosys

INFO should be a key beneficiary of a recovery in IT spends in FY22, given its capabilities around Cloud and Digital transformation.

Leading operational performance in 9MFY21 and strong deal wins should translate into strong outperformance in EPS growth (v/s the sector).We upgrade our FY21E/FY22E/FY23E EPS estimate by 1%/3%/7% as we adjust our revenue and EBIT margin trajectory to incorporate a strong deal environment.

Based our revised estimates, the stock is currently trading at 21x FY23E EPS. Reiterate Buy.

Sun Pharma

SUN Pharma delivered higher-than-expected profitability on: a) better traction in Specialty portfolio/US Generics, and b) extended benefit of lower opex.

We raise our FY21E/FY22E/FY23E earnings estimate by 9%/7%/7%, factoring in:

 a) gains from marketing in the Specialty portfolio

b) market share gain/utilizing shortage opportunities in US Generics c) controlled operational cost due to uncertainties related to COVID-19.

We remain positive due to:

a) superior execution in the Specialty portfolio

b) strong ANDA pipeline

c) outperformance in the Branded Generics segment. Maintain Buy.

M&M

Mahindra & Mahindra’s 3QFY21 performance was driven by good performance in both the Tractors and Autos businesses.

Furthermore, it has guided for an almost 90% reduction in international subsidiary losses in FY22E, driven by the completion of phase-1 of the capital allocation exercise.MM has twin levers of core business recovery as well as benefits of tightening capital allocation for EPS growth and re-rating.

We upgrade FY21/FY22E EPS by 14%/20% to reflect volume upgrade in Tractors & Autos, tighter cost control, lower depreciation, and higher other income. Maintain Buy.

Voltas

Voltas’s 3QFY21 earnings were 31% better than our expectation, led by better than-expected execution in the EMP segment, strong volume growth in the UCP segment, with ongoing cost rationalization leading to higher margin.

It has retained its numero uno position in Inverter Air Conditioners/Room Air Conditioners (RAC) with a market share of 21.8%/26% in Dec’20. Valuations are expected to remain elevated going into the summer season, with high expectations as well as likely announcement of a detailed PLI scheme for the AC industry.

We increase our FY21E/FY22E/FY23E EPS estimate by 5%/11%/15% owing to the strong performance in 3QFY21.

Dr Lal Pathlabs

Dr Lal Pathlabs too has been witnessing a rise in testing diagnostic volumes around COVID-19. But had it not been for Covid, it would have still performed well given that it’s been a consistent cashflow generator and has delivered ROCEs in excess of 30%.

IOC

IOCL is likely to benefit from the petchem spread which is currently at multi-year highs.Among the OMCs, we reiterate IOCL as our top pick, on the back of a diversified EBITDA mix (Marketing: 43%, Refining: 23%, others: 34% in FY19) – with the best free cash flow generation profile going forward.

Better marketing and petchem margins, along with lower refining opex resulted in a beat on EBITDA. Maintain BUY.

HOW TO PICK STOCKS?

There were three things we looked at:

Market capitalisation should be at least more than Rs 10,000 crores.

Simply put, the market cap is the market value of the company. It is the price at which you can buy all the outstanding shares of the company. It is calculated by multiplying the number of outstanding shares by the cost of each share trading in the market. Since the stock price is a dynamic number, the market cap also changes frequently.  It tells the size of the company. More prominent companies with higher mcaps have already reached a particular stage and are less prone to volatility with lower risk levels. Hence for assured and less volatile returns, a high market cap is an excellent measure to single out companies.

Operating profit margin more than 15%

Operating profits is the profits that any company earns from its core business. For example, Asian Paints core business will be manufacturing and selling different kinds of paint. Any other businesses it has would be ancillary or subsidiaries. OPM or operating profit margin, it examines the operating profit of a company to its revenue.

OPM= operating profit/sales revenue

That is for every Re 1 of sales, how much profit is a company generating from its core businesses. It is a good indicator because most analysts derive real value from a company when it makes good businesses from its core businesses rather than from any ad hoc financing activities. It is indicative of a company’s long term sustainability, efficiency and health.

Profit growth for three years should be more than 10%

While operating profit takes only the core business into account, net profit takes all aspects of a company. It also accounts for costs such as taxes, interest expense for an outstanding debt and reflects the real earnings of the entire business. The net profit comes at the bottom of the profit statement after accounting for all costs and expenses, hence is known as the bottom line.

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