The market staged a spectacular show in 2017 as benchmark indices rose over 25 percent each. The Nifty50 rallied by about 26 percent so far in the year but much of the action was seen in broader markets.
The Midcap index, which surged more than 40 percent so far in 2017, got support from domestic investors which have emerged as big buyers in equity markets via mutual funds (MFs).
Besides liquidity, factors such as reforms initiated by the Modi-led government reforms such as GST, Rs 2.1 lakh crore PSU banks' recapitalisation plan, and nearly Rs 7 lakh crore worth of highway projects contributed to the rise.
Steps taken towards NPA resolution also contributed towards a rise in ailing PSU bank stocks. The BJP's landslide victory in Uttar Pradesh assembly elections, and then in Gujarat and Himachal Pradesh also lifted market sentiment in the year.
The BSE's total market capitalisation crossed Rs 150 lakh crore during the year.
The index might have just gone up by over 20 percent but there are a lot of stocks which turned multibaggers for investors, which include not only old stocks but also some new names who debuted in the year 2017 such as D-Mart, Shankara Buildpro etc. among others.
But, going into 2018, the focus will shift from liquidity to performance. Investors will be better off placing bets on stocks which can offer earnings growth.
Majority of experts with whom Moneycontrol.com interviewed said that the Bull Run in 2018 is expected to continue as indices could rally another 10-15 percent in the next 12 months.
The rally would be on the back of a recovery in corporate earnings and economic growth due to recent government measures. Stability in crude oil prices, efforts by the government to retain fiscal deficit target will lift sentiment.
Domestic liquidity will play a key factor for markets in the next 12 months as some experts feel that the liquidity from domestic investors could ebb. A key risk which could impact equity markets is a rise in crude oil prices, interest rate hikes by global central banks and slow corporate earnings growth.
"For next 12 months, we expect appreciation of about 10-12 percent with 11,450-11,650 target level for the Nifty," Yogesh Mehta, VP- Retail Research, MOSL said.
He feels midcaps which delivered around 45 percent returns compared to Sensex (returns of around 27 percent), are likely to continue delivering higher earnings growth as these companies are largely domestically focused and continued strong flows by domestic institutions.
Gaurav Mehta, Fund Manager, Ambit Asset Management said that after the near-term disruptions around demonetisation and GST things do appear to be slowly inching towards normalcy.
“If the government executes well on infrastructure projects like Bharatmala, that should help reflate the economy too. So on earnings as well as the economy, it does appear that we are close to a revival, especially so for the formal economy and organized players," he said.
Here is a list of top 10 (largecap and midcap) picks from various experts which one can look for the year 2018:-
Analyst: Yogesh Mehta, VP- Retail Research, MOSL
The company is back on the growth path, driven by (a) regulatory changes in the key domestic passenger 3W-states providing strong medium-term growth visibility, (b) filling up of product gaps in domestic motorcycle portfolio helping to regain lost market share, (c) stability in key export markets and ramp-up in new markets driving export sales.
It is well placed to ride on premiumisation trend. Husqvarna and KTM present an opportunity to drive contract manufacturing volumes by 3x over the next few years. Mehta expects total volumes to grow at a CAGR of 10 percent over FY17-20.
The net revenue should grow at 14 percent and PAT or net profit should grow at 16 percent CAGR over FY17-20. Valuations at 17x FY19E and 15x FY20E consolidated EPS are looking attractive.
The pharma major exports to over 125 countries across the globe with more than 70 percent of its revenues derived out of international operations and among the largest filers of DMFs and ANDAs from India.
It is poised to outperform its peers in the current circumstances because of strong US pipeline, diversified product mix (top-25 products accounts for 35 percent of sales) and no pending regulatory issues.
Cumulatively, Aurobindo has filed 463 ANDAs in the US and has received approvals for 3334 products (includes 40 tentative approvals). It has transferred manufacturing of 74 products from Europe to India.
The European market increased on the back of high growth across all countries and expects the growth momentum to continue in key markets like UK, Germany, and France going forward.
The company is primarily engaged in the manufacturing of cement as its core business activity. It has a significant presence in the jute goods industry as well.
It has consolidated operations with a capacity of 15.5mt which is among the largest in the Satna cluster, with 22 percent of market share. It recently acquired subsidy Reliance cement which is operating at 74 percent in 1HFY18 due to sand mining ban in U.P. Eastern operations witnessed good demand coupled with a higher share of premium products.
The stock trades at 10x/9x FY19/20E EV/EBITDA and EV/tonne of USD120 on FY20E capacity. The brokerage firm increased its valuation multiple given the strong performance reported by the acquired subsidiary and value BCORP at Rs1435 at 11.5x FY20E EV/EBITDA.
The company has delivered consistent healthy performance in a difficult operating environment. It is rapidly expanding its distribution network and is continuing with its investment in R&D and significant expansion of its own manufacturing indicate management’s optimism about the growth prospects. Guwahati factory will be operational in six months.
Investing in capacities for the international business as well. Setting up a factory in Mundra SEZ and another factory in Nepal.
Opportunity beyond biscuits is also substantially high. Continuing premiumization, significant incremental cost savings, and a favorable commodity cost outlook mean that 15% EBITDA margin is achievable.
The company sees robust business opportunity coming up in the road sector post the Bharatmala project announcement. It expects annual awarding from the NHAI to be Rs800 billion in FY18 versus Rs600 billion in the previous year.
The company has maintained its standalone revenue guidance of Rs 3,800/Rs 4,500 crore for FY18/FY19 and expects the operating margin to be in the range of 11-12 percent and traffic growth to be 10 percent in 2HFY18. The order inflow is expected to be Rs 7,000 crore for FY18.
The management has reiterated its commitment to reduce debt incrementally by Rs 200 crore to Rs 1,250 crore by end-FY18. The river linking and metro projects to provide massive business opportunity over the medium term.
The government has announced plans to inter-link more than 60 rivers across India to reduce floods and address the issue of water shortage in India. It is well placed to take advantage of the upcoming opportunity in the Rs7 trillion road sector. Over FY17-20, Motilal Oswal expects a CAGR of 17 percent in revenue and 16 percent in earnings.
Analyst: Jayant Manglik, President, Retail Distribution, Religare Securities
The robust outlook of tiles industry (led by lower per capita consumption and expected to pick up in real estate sector) augur well for Kajaria Ceramic.
The market leadership in tiles and entry in bathware products would drive future growth. Going forward, revenue and PAT are likely to increase at CAGR of around 10.3 percent and 17.3 percent, respectively over FY17-20.
The Net revenue and PAT are likely to grow at a healthy pace, led by demand revival and company's efforts towards brand building.
Despite higher oil prices, margins could improve at a gradual pace, led by operating leverage. Market leadership, leverage free balance sheet, and healthy cash flows would provide valuation comfort.
BEL is likely to benefit from government’s increased emphasis on ‘Make in India’ and higher defence capex.
Strong order book (more than Rs 40,000 crore) and healthy order inflow (Rs 13,000 crore) outlook provide greater revenue visibility. Increased investment in R&D will help BEL retain its leadership position in the defence segment.
Mold-Tek Packaging will benefit from a revival in paint and lubricant industries, being a market leader in the rigid packaging industry.
Food and FMCG segment will drive growth in the coming years. The company is setting up two new plants for Asian Paints, which will meet their pail demand.
Demand revival and higher capacity utilization will improve its volume offtake and profitability. The company will benefit from government’s thrust on water supply and sanitation infrastructure.
Revenue and PAT are likely to increase at CAGR of around 18.4 percent and 17.5 percent, respectively over FY17-20.
