Synopsis : The Indian stock market, including Sensex and Nifty 50, declined due to global instability amid Iran-Israel tensions. Nifty Smallcap 100 and Nifty Midcap 100 indices also fell. Factors like a stronger US dollar, Treasury yields, and foreign fund outflows contributed to market worries. HDFC Securities suggested five stocks—V-Guard Industries, eClerx Services, NRB Bearings, Pitti Engineering, and Dhanuka Agritech—as sound investment options amidst volatile conditions.
Stocks to Consider: The Indian stock market indices, including the Sensex and Nifty 50, experienced a further decline on Monday, dropping by more than half a percent each. This downturn was primarily influenced by weak global indicators, exacerbated by escalating tensions between Iran and Israel in the Middle East, which unsettled equities worldwide.
The market sell-off was widespread, with both the Nifty Smallcap 100 and the Nifty Midcap 100 indices trading down by one percent each.
Factors contributing to this downturn included a spike in the US dollar and Treasury yields, coupled with foreign fund outflows and heightened tensions in the Middle East due to the Iran-Israel conflict.
In response to market volatility, HDFC Securities has identified five stocks with strong fundamentals that investors may consider. According to the Retail Research team at HDFC Securities, these five stocks have the potential to generate satisfactory returns within a time frame of 2-3 quarters.
The recommended stocks are V-Guard Industries, eClerx Services, NRB Bearings, Pitti Engineering, and Dhanuka Agritech, which HDFC Securities has identified as promising picks based on their underlying fundamentals.
V-Guard Industries | Buy | TP: INR 379
V-Guard Industries with its strong brand equity and a well-diversified product portfolio is well poised to capitalize on the fast growing consumer electrical and durable sales in India, buoyed by rising income levels, rising consumer awareness, technologically innovative product launches and rising demand for premium products, HDFC Securities said.
While V-Guard’s gross margins in recent quarters have benefitted from the softening of raw material prices in recent quarters, additional interventions in the Consumer Durables segment and various other cost reduction initiatives are expected to drive sustainable EBITDA margins in the range of 9% - 9.5% in the long term, it added.
According to HDFC Securities, the base case fair value of the stock is INR 379 and the bull case fair value is INR 405. Investors can buy V-Guard Industries shares in INR 335-345 band and add more on dips in INR 300-310 band.
eClerx Services | Buy | TP: INR 2,685
eClerx Services’ performance over the past five quarters reflects rising demand for and stickiness of the company’s services. After reporting flattish revenue for the past three-four years, eClerx has finally shown signs of revival and reported 8.8%, 38.1% and 22.6% revenue growth in FY21, FY22 and FY23, respectively followed by 9.6% in 9MFY24.
eClerx’s financial profile remains healthy marked by stable earnings, sizeable networth, and strong liquidity with large cash reserves, healthy capital structure and coverage metrics.
Investors can buy eClerx Services shares in the INR 2,426 - 2,476 band and add further on dips in the INR 2,156 - 2,200 band. We believe the base case fair value of the stock is INR 2,685 and the bull case fair value of the stock is INR 2,830 over the next two to three quarters, HDFC Securities said.
NRB Bearings | Buy | TP: INR 320
NRB Bearings shares are available at a steep discount to MNC bearings companies listed in India and the brokerage firm feels that the discount has scope to narrow over time. It expects the company’s Revenue, EBITDA and PAT to grow at 11%, 13% and 20% CAGR over FY23-FY26E, led by demand revival, increasing exports, operating leverage and reduction in debt.
We believe investors can buy NRB Bearings stock in the band of INR 289 - 294 and add on dips to INR 259-263 band (15.5x FY26E EPS) for a base case fair value of INR 320 (19.0x FY26E EPS) and bull case fair value of INR 346 (20.5x FY26E EPS) over the next 2-3 quarters, HDFC Securities said.
Pitti Engineering | Buy | TP: INR 932
HDFC Securities feels Pitti Engineering is on a strong wicket given the industries to which it caters to and its established technical expertise and customer relationships. Recent corporate action has the potential to give further thrust to the momentum.
Aided by a strong long-term outlook due to the expectation of order inflows and revenue growth in the upcoming years on better execution in the coming few quarters, it expects revenue, EBITDA and PAT to grow at a CAGR of 19.6%, 25.7% and 38.9% over FY23–26E.
According to the brokerage house, the base case fair value of the Pitti Engineering shares is INR 932 (20.25x FY26E EPS) and the bull case fair value is INR 989.5 (21.50x FY26E EPS) over the next two-three quarters. Investors can buy the stock in the band of INR 843 - 860 (18.51x FY26E EPS) and add more on dips to INR 752 - 766 band (16.5x FY26E EPS.
Dhanuka Agritech | Buy | TP: INR 1,203.5
Dhanuka Agritech has a strong product portfolio and a distribution-led business model; it has robust return ratios (> 20%), backed by a debt-free cash-rich balance sheet. In 9MFY24, Dhanuka reported 3.8% growth in revenue and operating margin improved 270 bps YoY to 17.8% primarily due to better gross margin.
HDFC Securities is positive on the Dhanuka Agritech stock given a strong balance sheet, high revenue contribution from the specialty portfolio, strong distribution network and commercialization of the new unit.
It feels investors can buy Dhanuka Agritech shares in the band of INR 1,095 - 1,112 and add more on declines to INR 985 for base case fair value of INR 1,203.5 (19.25x FY26E EPS) and bull case fair value of INR 1,282 (20.5x FY26E EPS) over the next 2-3 quarters.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies. We advise investors to check with certified experts before making any investment decisions.
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