After consolidating in May 2024, the Nifty index closed 6.6 percent higher in June 2024. The return of the NDA government, combined with strong macroeconomic factors such as 8.2 percent GDP growth in FY24, 5 percent inflation, manageable current account and fiscal deficits, a stable currency, and robust corporate earnings (with Nifty posting a 25 percent growth in FY24), provided a substantial boost to the market.
The market focus has now shifted to the forthcoming Union Budget, which will outline the priorities of the government for the next five years.
In a recent budget preview report, brokerage house Motilal Oswal said that it expects the government to strategically utilise extra windfall from the RBI dividend to provide relief to the poor and middle-class and to encourage consumption ahead of the key state elections slated in Oct-Nov’24.
“With elections behind & the return of NDA to power, we anticipate policy continuity to drive the overall economic momentum further. There would be a sustained focus on infrastructure, capex, and manufacturing in our view. Overall, we maintain our long-term positive view on the market and prefer Financials, Consumption, Discretionary, autos, telecom, Industrials & Capex, Real Estate are our key investment themes,” it said.
For the upcoming budget, the brokerage has come out with 14 top investment ideas. It has picked 8 stocks from the large-cap space and 6 from the mid-cap category. Let’s take a look:
Large-cap investment ideas
ICICI Bank: The brokerage has a target price of ₹1,350, implying an upside of 8.5%. ICICIBC is well positioned to deliver superior performance characterised by healthy loan growth, strong asset quality and industry-leading return ratios, said the brokerage. While it estimates margins to remain range-bound in the near term, the operating leverage is emerging as a lever to support earnings growth.
HCL Tech: The brokerage has a target price of ₹1,710, implying an upside of over 13%. Its robust capabilities and scale in the ER&D space, and continued investment to drive digital engineering revenue with strong outsourcing opportunities should provide sustainable and predictable growth going forward, said MOSL. It expects the company’s ER&D and IT services to register a CAGR of 15.5% and 10.5% over FY24E-FY26E.
Coal India: The brokerage has a target price of ₹550, implying an upside of 12%. COAL remains MOSL’s top pick in the metals and mining sector. With a robust volume outlook, healthy e-auction premiums, and lower costs, the outlook for COAL remains positive.
State Bank of India: The brokerage has a target price of ₹1,015, implying an upside of 19.5%. A strong liability profile, an enviable CD ratio and robust tech capabilities position SBIN well to capitalise on growth opportunities as a stable policy environment & continued reforms continue to bolster overall economic activity, noted the brokerage. SBIN remains one of its top ideas in the banking sector.
L&T: The brokerage has a target price of ₹4,150, implying an upside of almost 14%. MOSL believes growth will be driven by: the ramp-up of domestic inflows after elections, completion of low-margin legacy projects in the next couple of quarters, and constant reduction in working capital and the resultant RoCE improvement. It expects a 20% PAT CAGR over FY24-26E.
M&M: The brokerage has a target price of ₹3,300, implying an upside of almost 21%. Strong demand momentum in Uvs, healthy long-term growth opportunity in tractors, noted MOSL. It added that solid progress within growth gems would emerge as future value-unlocking drivers, while continued prudent capital allocation with a clear focus on returns would lead to stock re-rating, said the brokerage.
Mankind Pharma: The brokerage has a target price of ₹2,650, implying an upside of over 23%. Mankind Pharma with a robust domestic formulation (DF) franchise is the fourth largest player by market share. It has diversified portfolios in both therapies and brands. Considering its strong brand visibility, sustainable earning growth and superior return ratios, MOSL expects a 16% earnings CAGR over FY24-27, led by a 12% sales CAGR and a 270bp margin expansion.
Chola Invest: The brokerage has a target price of ₹1,660, implying an upside of almost 17%. CIFC is a franchise equipped to deliver strong AUM growth with benign credit costs (vs. peers), translating into sustainable RoE of 21-22% across economic cycles, it said. Chola currently collaborates with eight fintech partners who have good scale on their respective platforms, added MOSL.
Mid-cap investment ideas
Godrej Properties: The brokerage has a target price of ₹3,725, implying an upside of over 12%. As per the brokerage, while GPL will continue to build on its growth path, the turnaround in cash flows and profitability, which has been a key investor concern, will drive further re-rating in the stock. It expects GPL to generate surplus cash flows from FY26 onward, restricting net debt to ₹8,000-8,500 crore.
Persistent Systems: The brokerage has a target price of ₹4,560, implying muted upside. The robust healthcare growth in 3Q is driven by the substantial contribution from medical devices, with pharma and healthcare provider businesses taking the lead in the US region, noted MOSL. The company has made strategic investments in the payer domain, which is expected to get materialised over time, it added.
KEI Industries: The brokerage has a target price of ₹5,230, implying an upside of almost 16%. KEI is the second-largest player in the cables & wires industry. It will maintain an 11% margin in FY25, and expects the margin to expand 1.0-1.5pp over the next few years, led by the increase in retail sales and wire prices. Going forward, MOSL expects EBITDA and EPS to register a CAGR of 25% each over FY24-26E driven by sustaining earnings growth & improving sector dynamics.
PNB Housing Finance: The brokerage has a target price of ₹1,015, implying an upside of almost 26%. PNB Housing is well equipped to successfully navigate near-term headwinds in NIM, and further offset them with product mix improvements. MOSL expects the company to deliver a healthy 18% CAGR in loans and 23% CAGR in PAT over FY24-26, with RoA/RoE of 2.4%/13.0% by FY26. The company will shift to higher-yielding segments through the affordable housing and emerging market verticals. It plans to continue to invest in technology, added the brokerage.
Angel One: The brokerage has a target price of ₹3,400, implying an upside of 53%. The company, with the ₹1,500 crore fundraising in place, is well positioned to grow business across key parameters such as client acquisition, orders, and MTF book. Additionally, new segments such as loan distribution and fixed-income product distribution should scale up in the near term. Over the long term, AMC and Wealth Management will start contributing to revenues, stated MOSL.
Kalyan Jewellers: Kalyan is a prominent player in the organised jewelry market, known for its wide range of product offerings, strong brand reputation, and extensive store network. It is now embarking on an aggressive expansion plan in the rest of India, where higher margins are achievable. This expansion will be achieved by successfully building through a franchise model. If executed well, this plan could transform Kalyan and pave the way for 15-20% long-term annual revenue growth, lift its ROE from 14-15% to potentially 20-22% in the next 2-3 years, and unlock operating leverage. MOSL believes that the company will be able to successfully scale up its new franchise businesses, and expand its reach in the non-southern markets to evolve as a leading brand in the industry. It estimates revenue/EBITDA/Adj. PAT CAGR of 29%/26%/41% over FY24-26E.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.