Four stocks that have not performed in last year would perform now
Updated on 29 July 2017
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Four stocks that were lagging during market uptrend would provide some uptrend.
Stocks like Tata Motors, Mahindra & Mahindra, Asian Paints, Dabur and ONGC have largely remained muted this past year during which the Nifty added a fifth digit. Unlike technology and pharmaceutical companies, these industry leaders are unlikely to encounter headwinds that could impact their earnings. Hence, these frontline stocks could be attractive bets in the coming months.
MAHINDRA & MAHINDRA
M&M, India’s largest tractor manufacturer, is likely to benefit the most from incremental tractor volume growth. The company has said the industry would expand 10-12% in FY18. Analysts expect 15-18% volume growth for M&M since it has been outperforming the industry for the past two years.
M&M’s operating margin for tractors is about double of the automotive business, which means higher volume growth for tractors is margin accretive. The company’s tractor volumes rose 13% in the first quarter of FY18.
Dabur is expected to benefit from increasing consumer preference for herbal products. More than half of the company’s new launches have been Ayurvedic products. Also, the company is expected to benefit from its increasing rural focus, with the company generating 45% of its sales in the hinterland.
Good monsoon and increasing government investments in rural infrastructure should improve farm income, while re-monetization is expected to revive purchasing power. Furthermore,Dabur is also expected to benefit from its focus on food & beverages, robust distribution network, and increasing engagements with channel partners.
Asian Paints should benefit from the implementation of the Goods and Services Tax (GST) as it will reduce the tax arbitrage for unorganised players and result in more business to large-sized branded players. With about 53% share in India’s competitive decorative paints segment, Asian Paints is poised to gain the most with revival in demand.
The company gets about 89% of its revenues from the decorative segment, and the rest from industrial customers. In the next few quarters, Asian Paints is expected to benefit from the government’s Housing for All initiative, and the implementation of the Seventh Pay Commission.
Upstream companies such as ONGC offer better risk-reward ratio compared with downstream companies due to superior volume visibility and attractive valuations. ONGC expects offshore crude oil production to increase to 16.8 MMT in FY18, from 16.3 MMT in FY17. ONGC has also forecast a production rebound in gas to 64 million metric standard cubic meter per day (mmscmd) in FY18, compared with 54 mmscmd, or up 18.5% on year.
A positive policy environment may further benefit its production growth. Approval for the implementation of Enhanced Oil Recovery technique will also be positive for ONGC, and enhance its share in incremental volumes.