As macro-economic indicators show signs of worsening, there is a scramble for the consumption theme. Brokerage CLSA said urban discretionary consumption is doing well, while rural consumption is showing signs of improvement. “Farm loan waivers, aggressive land purchase programmes for roads, increased budgets for rural employment programme, etc, are showing initial results,” the brokerage said. “The governments impetus on welfare programmes is going to increase even more which is evident in its rhetoric.” CLSA said corporate commentary shows optimism in rural demand growth improvement, which is visible in auto volume. But the biggest issue for investors is to find cheaper bets in this theme. CLSA has identified nine stock under the consumption theme that offer relative value.
Mahindra & Mahindra
Returns year to date (%): 10.07
CLSA said the company is the cheapest rural consumption play. The stock is trading at 14 times FY19 estimated earnings. The possible launch of a Multi Purpose Vehicle (MPV) in the second quarter of FY19 would be a trigger.
Returns year to date (%): 7.22
It is the only staples company to trade below 30 times price to earnings (PE) multiple, the brokerage said. “We believe GST-related concern is overdone and the stock could rerate slowly if tax hikes do not happen or happen only moderately, leading to a cigarette volume growth revival,” it said.
Returns year to date (%): -24.59
CLSA said the stock trades below 1 standard deviation at 14 times March 19 estimated earnings. “Print ad-growth will revive, led by state elections in its key markets (MP/CG and Rajasthan) in 2HCY18.”
Dr Lal Path Labs
Returns year to date (%): 0.08
The company has an asset light model and is a play on healthcare penetration in India, the brokerage said. While the stock is trading at an attractive PE of 35 times FY19 estimated earnings, the companys volume growth recovered from single digits in the fi rst half of the previous fi nancial year to 25% in the second half.
Returns year to date (%): 6.42
CLSA said the mortgage fi -nancer is one of the best ways to play a potential housing recovery. It said the companys price to book value at 2.1 times March 2019 estimated earnings is below average and its ROEs are near 18%-20%.
Returns year to date (%): -22.33
CLSA said the stock has underperformed recently due to concerns over margins but volume growth has revived. It said the company has the highest exposure to rural India and the stock offers relative value.
Returns year to date (%): -9.53
The brokerage said the stock is trading at 30 times FY19 estimated earnings and is the second cheapest stock. “Growth has picked up with 8% volume growth in 4Q,” it said.
Returns year to date (%): -12.90
CLSA said the stock has underperformed because of concern over new product launches. “We expect a 30% CAGR and it appears attractive at 36 times March 2019.”
ICICI Prudential Life
Returns year to date (%): 8.20
CLSA sees scope of rerating in the stock. The stock is at 3.1 times March 2019 estimated enterprise value (EV). This is over a 40% discount to HDFC Life with healthy growth in core earnings, the brokerage said.
Seven stock recommendations from top global brokerages
Top buy calls from global brokerages
21 May, 2018
The domestic equity market continued to decline in Monday's session. The Sensex fell amid selling in realty, healthcare, metal, auto, consumer durables and basic materials counters. Investors were wary after BJP received a major political setback in Karnataka, while a falling rupee, rising crude oil prices and spiking US bond yields continued to haunt the market. But some analysts said investors can use this weakness to buy quality stocks at cheaper valuations. Here are seven stocks that some global brokerages picked as their top buy calls this morning. Take your pick: