Nifty’s up move to be gradual in 2021; HDFC Securities lists its top stocks picks for next year

Domestic markets might be seeing some correction but are still trading at levels higher than their pre-coronavirus highs. Yesterday’s fall, analysts say, was aided by the threat of the new strain of the coronavirus in the United Kingdom while investors were looking for a reason to book their profits. But with the year ending many even believe that investors are closing their positions for this year and planning their trades for 2021. In the coming year, HDFC Securities believes that if Nifty rises substantially, the move would be gradual and measured. Here are the top stocks picks by HDFC Securities for 2021.

Bandhan Bank
The private sector lender is currently trading at Rs 386 per share, after making a strong comeback from yesterday’s lows. Analysts at HDFC Securities see the bank’s market share, with a high base in North-East India as a positive. “It has consistently demonstrated a strong track record in growing its balance sheet/earnings (AUM grew by CAGR 44% FY10-20). As on FY20, its total customer base stood at ~20mn customers with a loan book of Rs 76k crore,” the report said. Bandhan Bank could see a sharp uptick in competition in the coming years with more MFI players expanding their base.

Birla Corporation

With a 4.2% market share in the cement industry, Birla Corporation has a strong presence in central, northern states along with West Bengal and Maharashtra. “The company has 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,” HDFC securities said. Concerns for the firm stem from issues around its management and any weakness in cement prices. The stock trades at Rs 677 apiece.

GAIL

GAIL is working on plans to expand into petrochemicals, speciality chemicals and renewables to supplement growth in its core business of natural gas marketing and transportation, a positive for the firm going forward. GAIL also 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. GAIL’s share price is trading at Rs 117 per share.

HPCL

The state-owned OMC has a wide marketing and distribution network, including cross-country pipelines and 16,707 retail outlets. “HPCL plans to invest more than Rs 60,000 crore in the next five years to build and develop infrastructure, including the implementation of significant projects such as the capacity expansion at its refineries, expansion of its pipeline network, and setting up of new pipelines,” HDFC Securities said while adding that BPCL divestment could lead to a rub-off effect on HPCL’s valuations. Maintaining margins remains key for the firm. Stocks of HPCL were trading at Rs 207.

Hindustan Unilever Limited

HUL shares were trading flat on Tuesday at Rs 2,299 per share. The FMCG major is the leading player in the category. “The company is debt-free and cash-rich (~Rs.5113 cr cash as of FY20) after recent acquisitions of GSK’s consumer business. We expect substantial synergy benefits to play out in the next 2-3 years,” the report said. Commodity price fluctuations are a key concern for the stock.

Infosys

The Information Technology giant was trading at Rs 1,187 per share on Tuesday morning. The firm has a strong deal pipeline. In the previous quarter, Infosys announced large deal wins with a total contract value of $ 3.15b, which is the highest ever recorded in the fiscal second quarter. Infosys too is a debt free firm generating healthy cash. The concern for Infosys stems from weakness emerging for clients of the firm which may result in delays for Infosys.

ONGC

“The recent rise in crude oil prices and the expected uppishness therein is not fully reflected in the current valuations of ONGC,” said analysts at HDFC Securities. The average capex of ONGC per annum has been in the range of Rs 30,000 to Rs 32,000 crore. The brokerage firm said that ONGC acquisition of a majority stake in HPCL is a defining move – one that significantly transforms its downstream portfolio. The decline in production in its mature fields over the recent past is a key concern going forward.

State Bank of India

India’s largest public sector lender is also among the stocks that HDFC Securities has picked for the coming year. “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,” the brokerage firm said. Delay in resolutions of bad loans is something that could impact State Bank of India’s performance. SBI share price was trading at Rs 252 apiece on Tuesday.

Sun Pharma

The largest pharmaceutical firm in India with a strong 8.2% market share has 31 brands amongst top 300 brands in IPM. Over the past 6 years, Sun Pharma has made Rs 12,600 crore worth of R&D investment. “We believe that in the next 2-3 years, Sun Pharma’s superior earnings growth will be driven by regulatory resolutions, moderating price erosion and several product launches across generic and speciality categories. A slower ramp-up in the speciality portfolio is a concern. Sun Pharma’s shares were trading at Rs 559 per share.