Here are HDFC Securities’ top 10 stocks for 2021


Market

Updated : 2020-12-22 15:46:29

Indian markets saw a sharp fall in March 2020 and a gradual recovery which has brought us to all-time highs. The pandemic has created massive opportunities for some businesses like pharma, chemical and the technology industry. In a recent note, HDFC Securities stated that a large portion of the Nifty run-up is over and, from now on, its rise would be gradual and measured. In the interim, markets may see bouts of correction, especially if FPI flows dry up for a couple of days/weeks. Stock- wise moves could continue to take place even, it added. The brokerage has listed the top 10 stocks to watch out for in 2021. Here’s the list:

 Bandhan Bank:  Bandhan Bank is India’s largest MFI company with over 20 percent market share in India. It has consistently demonstrated a strong track record in growing its balance sheet/earnings. As of FY20, its total customer base stood at 20 million customers with a loan book of Rs 76,000 crore. Post the merger with Gruh Finance, mortgages account for 26 percent of the loan book. In the next five years, it aims to transform itself into a one-stop solution for all banking requirements of mid and low-income group customers.

Bandhan Bank: Bandhan Bank is India’s largest MFI company with over 20 percent market share in India. It has consistently demonstrated a strong track record in growing its balance sheet/earnings. As of FY20, its total customer base stood at 20 million customers with a loan book of Rs 76,000 crore. Post the merger with Gruh Finance, mortgages account for 26 percent of the loan book. In the next five years, it aims to transform itself into a one-stop solution for all banking requirements of mid and low-income group customers.


 Birla Corporation : The company has a significant presence in central (Madhya Pradesh), northern regions (Uttar Pradesh and Rajasthan), West Bengal and Maharashtra. It has 4.2 percent of the market share in the Indian cement industry. The company has also finalised a plan to scale up its capacity to 25 MTPA by 2025 from the current capacity of 15.6 MTPA, which provides strong visibility of future growth. However, any fall in cement demand could lead to lower realisations and margins.

Birla Corporation: The company has a significant presence in central (Madhya Pradesh), northern regions (Uttar Pradesh and Rajasthan), West Bengal and Maharashtra. It has 4.2 percent of the market share in the Indian cement industry. The company has also finalised a plan to scale up its capacity to 25 MTPA by 2025 from the current capacity of 15.6 MTPA, which provides strong visibility of future growth. However, any fall in cement demand could lead to lower realisations and margins.


 GAIL : The company is planning expansion in petrochemicals, specialty chemicals and renewables to supplement growth in its core business of natural gas marketing and transportation. Apart from this, it plans to invest more than Rs 45,000 crore over the next five years to expand the National Gas Pipeline Grid and city gas distribution network. However, any changes in regulation by PNGRB in the city gas distribution and gas transmission industry concerning marketing exclusivity can hurt GAIL.

GAIL: The company is planning expansion in petrochemicals, specialty chemicals and renewables to supplement growth in its core business of natural gas marketing and transportation. Apart from this, it plans to invest more than Rs 45,000 crore over the next five years to expand the National Gas Pipeline Grid and city gas distribution network. However, any changes in regulation by PNGRB in the city gas distribution and gas transmission industry concerning marketing exclusivity can hurt GAIL.


 HPCL : Amongst PSU OMCs, HPCL has a wide distribution and marketing infrastructure network, including a network of cross country pipelines, terminals, depots and 16,707 retail outlets. It plans to invest more than Rs 60,000 crore in the next five years to build and develop infrastructure, including the capacity expansion at its refineries, expansion of its pipeline network and setting up of new pipelines. Any development on the divestment front for BPCL could lead to a rub-on effect on HPCL’s valuations.

HPCL: Amongst PSU OMCs, HPCL has a wide distribution and marketing infrastructure network, including a network of cross country pipelines, terminals, depots and 16,707 retail outlets. It plans to invest more than Rs 60,000 crore in the next five years to build and develop infrastructure, including the capacity expansion at its refineries, expansion of its pipeline network and setting up of new pipelines. Any development on the divestment front for BPCL could lead to a rub-on effect on HPCL’s valuations.


 Hindustan Unilever:  The company a market leader in multiple FMCG categories and has the widest distribution. The company is debt-free and cash-rich after recent acquisitions of GSK’s consumer business. The brokerage expects substantial synergy benefits to playing out in the next 2-3 years. Earnings may surprise on the upside, and the stock could get rerated gradually. However, volatility and price fluctuation in commodities like tea, palm oil and crude can temporarily affect the company’s margins.

Hindustan Unilever: The company a market leader in multiple FMCG categories and has the widest distribution. The company is debt-free and cash-rich after recent acquisitions of GSK’s consumer business. The brokerage expects substantial synergy benefits to playing out in the next 2-3 years. Earnings may surprise on the upside, and the stock could get rerated gradually. However, volatility and price fluctuation in commodities like tea, palm oil and crude can temporarily affect the company’s margins.


 Infosys : The IT major has announced large deal wins with a total contract value of $3.15 billion, which is the highest ever recorded in Q2FY21. The IT deal pipeline has been continuously improving despite cost-cutting and cash conservation measures by clients. The company's financial profile is also robust, led by a debt-free balance sheet and healthy cash-generating ability in the past.

Infosys: The IT major has announced large deal wins with a total contract value of $3.15 billion, which is the highest ever recorded in Q2FY21. The IT deal pipeline has been continuously improving despite cost-cutting and cash conservation measures by clients. The company’s financial profile is also robust, led by a debt-free balance sheet and healthy cash-generating ability in the past.


 NAM India : This NBFC is one of the largest asset management companies in India. Given that India is massively underpenetrated, there is enough scope for AMCs like NAM to continue to expand profitably. Also, there is increasing acceptability of the Nippon brand by Indian investors. Fund management business has high operating leverage, which will continue to aid profitability. However, the volatility due to COVID-19 fears has impacted the sentiment of retail investors and a considerable amount of lumpsum redemptions and stopping of SIPs may impact AUM growth.

NAM India: This NBFC is one of the largest asset management companies in India. Given that India is massively underpenetrated, there is enough scope for AMCs like NAM to continue to expand profitably. Also, there is increasing acceptability of the Nippon brand by Indian investors. Fund management business has high operating leverage, which will continue to aid profitability. However, the volatility due to COVID-19 fears has impacted the sentiment of retail investors and a considerable amount of lumpsum redemptions and stopping of SIPs may impact AUM growth.


 ONGC : The recent rise in crude oil prices and the expectations of further uptrend is not fully reflected in the current valuations of ONGC. Its average capex per annum has been in the range of Rs 30,000 to Rs 32,000 crore. The company's acquisition of a majority stake in HPCL is a defining move - one that significantly transforms its downstream portfolio. Still, the stock been experiencing a decline in production in its mature fields over the recent past, which may prove to be a headwind.

ONGC: The recent rise in crude oil prices and the expectations of further uptrend is not fully reflected in the current valuations of ONGC. Its average capex per annum has been in the range of Rs 30,000 to Rs 32,000 crore. The company’s acquisition of a majority stake in HPCL is a defining move – one that significantly transforms its downstream portfolio. Still, the stock been experiencing a decline in production in its mature fields over the recent past, which may prove to be a headwind.


 State Bank of India:  SBI is almost immune to any liability-side risks at this juncture, given its expansive, granular deposit base and government’s majority holding. It is better placed to deal with asset quality worries than many other large banks because of the quality of its loan book. Also, asset quality worries seem to be overblown. It has a presence in insurance, asset management, credit cards and various other services, including a stake in various regional rural banks. All these are performing exceptionally well and adding substantial value to the bank’s valuation.

State Bank of India: SBI is almost immune to any liability-side risks at this juncture, given its expansive, granular deposit base and government’s majority holding. It is better placed to deal with asset quality worries than many other large banks because of the quality of its loan book. Also, asset quality worries seem to be overblown. It has a presence in insurance, asset management, credit cards and various other services, including a stake in various regional rural banks. All these are performing exceptionally well and adding substantial value to the bank’s valuation.


 Sun Pharma:  Sun Pharma is the largest Indian pharma company that commands an 8.2 percent market share in the Indian market. It has made Rs 12,600 crore worth of cumulative R&D investments over the past six years (FY15-20), which bodes well. The brokerage believes that in the next 2-3 years, Sun Pharma’s superior earning growth will be driven by regulatory resolutions, moderating price erosion and product launches across generic and specialty categories. However, a slower ramp-up in the specialty portfolio may be a concern.

Sun Pharma: Sun Pharma is the largest Indian pharma company that commands an 8.2 percent market share in the Indian market. It has made Rs 12,600 crore worth of cumulative R&D investments over the past six years (FY15-20), which bodes well. The brokerage believes that in the next 2-3 years, Sun Pharma’s superior earning growth will be driven by regulatory resolutions, moderating price erosion and product launches across generic and specialty categories. However, a slower ramp-up in the specialty portfolio may be a concern.


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