Benchmark 30-share Sensex has eroded more than 35 per cent of its value, and the BSE Midcap and Smallcap indices are down by nearly an equal percentage.
According to Kotak Securities, in these panic like falls it is difficult to fathom the bottom but given the extremely favourable risk-reward situation, investors need to take a long term view and keep on accumulating stocks at every decline.
“Keep in mind that recovery will take time and mean reversion will happen in the medium to long term. We advise to focus on megacaps or largecaps at this juncture as the valuation gap between largecaps and midcaps has narrowed down,” Kotak analysts said in a note.
Here are the shortlisted 10 mega and large caps stocks that Kotak Securities is betting on:
This index heavyweight is down 33 per cent on a year-to-date basis. Kotak Securities reiterates buy rating on the stock notwithstanding a bleak downstream outlook, as the company may benefit meaningfully from plausible consolidation in telecom, culmination of key transactions, rising free cash flow (FCF) trajectory and sustained growth in the retail segment.
Airtel is extremely well positioned to benefit from whatever direction industry dynamics take from hereon, Kotak Securities said. From an execution standpoint, there is ample evidence to suggest that the company is now operating in top gear, the brokerage said adding it has a buy rating on the stock.
Kotak Securities believes that ICICI Bank call log return on equity (RoE) in excess of 15 per cent in the medium term. The brokerage values the banking stock at Rs 615, implying a 117 per cent upside form the prevailing level.
Kotak sees fair value of Bajaj Finserv at Rs 10,200, implying an upside of 121 per cent from the current level. Out of this, Bajaj Finance adds 74 per cent to the sum of the parts (SoTP) valuation, the brokerage said.
The brokerage expects HDFC to deliver a 17 per cent core earnings CAGR in FY20-22 on the back of 11 per cent year-on-year (yoy) growth in FY20.
HDFC Life Insurance
HDFC Life remains a highly profitable life insurance company with about a 20-21 per cent operating return on embedded value (RoEV) during FY2019-22. The brokerage retains add rating on the stock with a fair value of Rs 615.
The brokerage pointed out that selective price hikes and favorable raw material environment cushioned the impact of continued aggression on promotions. It is encouraging to note that Colgate has continued its brand investment in Q3FY120 where several of its peers pulled back sharply, it said.
“We keep the faith and retain “Add” even as the Street may now prefer waiting for evidence,” Kotak Securities said.
Kotak Securities said the valuations for the stock were cheap, especially on a relative basis, but were unlikely to act as a trigger. However, the brokerage has a buy rating with a fair value of Rs 300 per share.
Post Q3FY20 results, the company had maintained its guidance of 11-13 per cent revenue growth for 4QFY20. The stock is down 31.3 per cent for year to date. Kotak has a buy rating on the stock with an increase in fair value estimate to Rs 1,475
The brokerage still sees a strong US generics build-out over FY21-23 given the fourth-quater launch for ProVentil and partner launch for CiproDex. It continues to see value in the stock and feels the pessimism is unwarranted, and hence has a buy rating with fair value of Rs 570 per share.