Having witnessed an incessant rally from a panic low in March 2020 to a high in October 2021, equity markets have been volatile thereafter. It has been a choppy ride for the markets over the past few weeks. Despite several attempts, the indices have failed to cling to the gains and succumbed to global and domestic cues. Amarjeet Maurya, AVP – Mid Caps, Angel One Ltd., said: “Going ahead we expect the market to remain volatile in the near term due to higher inflation, hike in interest rate, higher commodities prices which would impact the earnings. Further, ongoing global uncertainty like prolonged Russian and Ukraine war, global inflation, and higher interest would keep the market under pressure.”
Inflation has emerged as the largest concern this year. Within impacted sectors, larger companies are better poised to gain market share from the midsized ones, in terms of their ability to absorb a part of the inflationary impact.
So, to tackle inflationary pressures central banks have hiked interest rates. Yesterday, minutes of the Fed’s May 3-4 meeting, released after Indian trading hours on Wednesday, suggested that the US central bank could hike interest rates by 50 basis points each in June and July but did not provide a clear guidance for rate increases after that.
Given that markets had already taken into account two 50-basis-point rate hikes in the next couple of months, the minutes did not have much of an impact. However, experts predict volatility to stay at a time when the market participants are spooked by these factors.
What Investors Should Do in Such a Volatile Market?
Santosh Meena, Head of Research, Swastika Investmart Ltd., said: “Investors especially the ones that have entered during the post covid bull market, have to taper down their expectations and need to work hard to achieve a reasonable reason. One of the best times to invest in stocks is during market falls and uncertain periods. The current scenario, where the environment is full of uncertainty and negative sentiments is very good to invest in as the risk to reward ratio has turned favorable. However, we recommend investing in a staggered manner and using buy on dip strategy.”
What Stocks To Invest in During Volatility?
Amarjeet Maurya, AVP – Mid Caps, Angel One Ltd., suggests five stocks which on should buy knowing that going forward the market is expected to remain volatile in the near term due to higher inflation, hike in interest rate, higher commodities prices which would impact the earnings.
Ashok Leyland
CMP- Rs 141 | Target Price-Rs 164 | Upside- 16 per cent
Ashok Leyland Ltd (ALL) is one of the leading player in India CV industry with a 32 per cent market share in the MHCV segment. The company also has a strong presence in the fast-growing LCV segment. While demand for the LCV segment has been growing smartly post the pandemic, demand for the MHCV segment has also started to recover over the past few months before the 2nd lockdown. We believe that the company is ideally placed to capture the growth revival in the CV segment and will be the biggest beneficiary of the Government’s voluntary scrappage policy and hence rate the stock a BUY.
Federal Bank
CMP-Rs 64 | Target Price-Rs 135 | Upside-60 per cent
Federal bank is one of India’s largest old generation private sector banks with total assets of Rs. 1.9 lakh cr. with deposits of Rs. 1.56 lakh cr. and a loan book of Rs. 1.2 lakh cr in F21. NPA’s have remained steady for the bank over the past few years with GNPA for Q3FY21 at 3.38 per cent while NNPA ratio stood at 1.14 per cent. PCR at the end of Q3FY21 stood at ~67 per cent which we believe is adequate. Restructuring book is expected to be at Rs. 1,500-1,600 crore out of which Rs. 1,067 crore has already been restructured. This is against earlier expectations of total restructuring of Rs. 3,000-3,500 crore.
HDFC Bank
CMP-Rs 1,319 | Target Price-Rs 1,859 | Upside- 41 per cent
HDFC Bank is India’s largest private sector bank with an asset book of Rs. 11.3 lakh crore in FY21 and deposit base of Rs. 13.4 lakh crore. The Bank has a very well spread out book with wholesale constituting ~54 per cent of the asset book while retail accounted for the remaining 46 per cent of the loan book. Q1FY22 numbers were impacted due to the second Covid wave which has led to an increase in GNPA/ NNPA by 15/8bps QoQ to 1.5 per cent and 0.5 per cent of advances. Given best in class asset quality and expected rebound in growth from Q2FY22 we are positive on the bank given reasonable valuations at 3.0xFY23 adjusted book which is at a discount to historical averages. We value the stock at3.7xFY23 adjusted book and arrive at a target price of Rs. 1859.
HCL Technologies
CMP-Rs 992 | Target Price-Rs 1,466 | Upside
HCL Tech (HCLT) is amongst the top four IT services companies based out of India and provides a vast gamut of services like ADM, Enterprise solutions, Infrastructure management services, etc. Strong deal wins should help drive growth in the services business which should make up for any shortfall in the product business due to the delays in deal signing. At CMP the stock is trading at a P/E multiple of 21.5xFY23 EPS estimate which is at a significant discount to the other large-cap IT companies like Infosys and TCS and offers tremendous value at current levels given market leader status in Infrastructure management.
Oberoi Realty
CMP-Rs 788 | Target Price-Rs 1,250 | Upside- 59 per cent
Oberoi Realty is a real-estate company, focusing on the MMR region, having business vertices of residential and commercial real-estate. Company has reported a strong set of numbers in Q2FY22 and we expect residential real-estate growth momentum to continue for the next couple of quarters as in Q3FY22. It owns Oberoi Mall (0.5 msf), Commerz (1.1 msf) and the west in hotel (269 room keys). We expect occupancy levels to improve in CY2022. Good consolidationis seen across India towards top-10 players, who now holds 11.2% market share as compared to 5.4% in 2017. We believe that top-10 players will continue to gain market share.
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