Coronavirus crisis: Motilal Oswal picks top 10 stocks to invest in

SUMMARY

Complete lockdown in an already sluggish economic growth environment in India is leading to extremely volatile market conditions. If not contained well, the spread of the virus can have a significant impact on the domestic consumption-driven economy, noted Motilal Oswal in a recent report. Once the virus is contained, markets would stabilize, it added. For investors, the brokerage advises accumulating good fundamental and quality stocks gradually over the next few weeks and months. It suggests accumulating on a gradual basis. Here's a list of the brokerage's top picks in this scenario:

By Pranati Deva Mar 30, 2020 1:33:46 PM IST (Updated)

Reliance Industries: The company aims for consumer business to contribute 50 percent of consolidated EBITDA in a few years. Jio has rolled out new tariff plans - while Minimum Recharge Price plans were hiked by 32 percent, the popular monthly plans witnessed a price hike of 25-30 percent. RIL’s target is to become a ‘zero net-debt’ company in the next 18 months which can act as a re-rating trigger.

HDFC Bank: HDFC bank is the largest private sector bank in India with an asset size of over Rs 12.6 lakh crore and a market share of 7 percent in deposit and loans, respectively. Superior loan profile has enabled HDFC Bank to consistently gain market share across retail segments. Strong capitalization and liquidity levels will help sustain this momentum over the next few years.

Hindustan Unilever: HUL is India's largest FMCG Company with strong brands, market leadership in most of the categories it operates in and one of the largest distribution network in India. Rapidly improving adaptability to market requirements, recognition and strong execution of the Naturals segment point toward an elevated earnings growth trajectory for HUL.

HDFC: HDFC is the largest HFC with AUM of over Rs 4.6t lakh crore as of FY19. It is also the largest deposit-accepting NBFC with total deposits exceeding Rs 1 lakh crore. HDFC is likely to be the biggest beneficiary of capital flows in an uncertain environment. The company is expected to make core ROA of 1.8-1.9 percent and core ROE of 14-15 percent. It expects the company to largely maintain spreads as the cuts in home loan rates are offset by declining cost of funds and opportunistic non-individual loan growth.

Infosys: In a cautious spending environment, the brokerage expects Infosys growth to remain steady in FY21. "Our comfort was driven by Infosys’s continued robustness in large deal wins and strong order backlog. In addition, Exposure of Infosys to challenged verticals like travel, transportation, and hospitality is not material. In addition, its exposure to Asian markets which are materially disrupted so far is also limited," it said.

Bharti Airtel: Bharti Airtel has over 410 million customers. With SC dismissing the reassessment of AGR liability, Bharti is better placed given its recent fundraise which should cushion the risk of AGR liability. It expects EBITDA to increase about 15% percent in FY21 to Rs 40,000 crore and incremental growth should come through ARPU or market share.

ICICI Bank: ICICI Bank has one of the strongest deposit franchise amongst private banks with a CASA of 47 percent. It believes the bank is well placed in a challenging environment with its limited exposure to the newly surfaced stressed names and one of the highest provisioning coverage in the banking sector. The impact of Coronavirus on to the broader economy does pose a risk to the banking system but ICICI has one of the lowest exposure to SME segment which forms less than 4 percent of total loans.

UltraTech Cement: UltraTech is the largest manufacturer of grey cement, Ready Mix Concrete, and white cement in India with an installed capacity of 95 mt. The acquisition of Century’s cement asset and Binani increased its capacity to 109.4 mt and took its pan-India market share to 24 percent. The brokerage forecasts a CAGR of 26 percent in EBITDA over FY19-21, driven by a 6 percent CAGR in volumes and better margins.

Alkem Labs: Alkem has been consistent outperformer to the industry in the domestic formulation market with 16 percent CAGR to Rs 4,900 crore over FY14-19. MOSL expects strong growth driven by its superior execution across Acute/Chronic segments and better traction with minimal regulatory risk in the US generics segment. Further, it has minimal exposure to geographies impacted by coronavirus. With the resumption of supplies from China, it expects the raw material cost to moderate going forward. The brokerage sees a 30 percent earnings CAGR over FY19-22.

Tata Consumer: As per the brokerage, there is no first-order impact of COVID-19. The merger of Tata Chemical’s consumer business with Tata Consumer Products is in sync with the Tata group’s focus to create a single FMCG-focused company.