Private banks, FMCG, media stocks look strong
The decline continues in equity markets for the fourth successive week with the benchmarks indices losing nearly one per cent amid volatility. Among the major issues, global growth concerns and mixed set of economic data kept participants in cautious mood. In the coming holiday shortened week, participants would be eyeing the Consumer Price Index (Agricultural Labourers/Rural Labourers) data, which is scheduled to be released on October 20. Besides, they would be keeping a close watch on the results of some big names including Cairn India, HDFC Bank, Punjab National Bank, Kotak Bank, Wipro and DR Reddy Lab among others. Though we may see some pause or technical rebound in the benchmark index but the bias would remain on the negative side till the Nifty is trading below 7950 mark. Meanwhile, stocks will continue to react as per their results so maintain stock specific approach with strict risk management rules. Among the sectors select private banking, FMCG and media pivots are looking comparatively stronger while selling pressure may continue in IT, metal and midcap space so plan your positions accordingly.
Jayant Manglik, president-retail distribution, Religare Securities
Hero Motocorp margins set to recover
Hero Motocorp (HMCL) reported second quarter 2014-15 EBITDA margins of 13.5 per cent even as profits beat analysts estimates at Rs 7.6 billion on higher other income and lower depreciation. HMCL’s LEAP project continues to deliver cost savings which could add 100-125bps to margins. In FY16, HMCL would also benefit from a reversal of excise duty reduction. We raise our earnings estimates and roll over to a December 2015 target price of Rs 3300 (from Rs 2,700) based on a target price earning multiple of 16 (earlier 15). HMCL net profit is boosted by the end of royalty amortisation in first quarter, higher other income and lower depreciation. In the festive season the company sales have posted double-digit growth. Management also expects the improving macro to help the domestic two-wheeler industry grow at 10-11 per cent in 2014-15.
Owing to robust demand for scooters, HMCL is expanding capacity from 75 000 to one lakh units per month by Jan 2015. The company has got a one-time order for 45,000 scooters from Sri Lanka which resulted in diversion of production from the domestic to export market. With an entry in three new countries (total 22 now) the company continues towards export sales of 2.5 lak units in 2014-15. Our BUY recommendation is based on HMCL being a key beneficiary of the cyclical recovery in two-wheeler demand owing to its established dealer network, new launches and rural penetration.
Punters take long position on stock
The NBFC space has remained a little reluctant in participating in the recent run up in the market. Stocks like HDFC remained largely range bound in the last couple of months. However, buying support is clearly evident at lower levels and delivery based buying was observed in this stock at declines. We expect HDFC to move higher from current levels towards Rs 1200 in the days to come. We believe the stock has added fresh long positions and is likely to move higher
HDFC has witnessed concentrated accumulation in call options and as the stock is showing initial signs of reversal from its support levels we believe with this sustained movement will result in further short covering which may propel it at a higher level in the days to come.