Sensex mantra: Bottom-up opportunities still available; top 10 stock ideas for long term

NEW DELHI: The S&P BSE Sensex, which reclaimed its key level of 28,000 on July 1, has been moving in range. This rangebound movement is likely to continue for some more time, but bottom-up opportunities are still available for long-term investors.

Bottom-up approach is defined as the methodology to pick stocks or companies which can do well even in the event of economic downturn or market cycles.

"We would not have known the exact market level for the year, but what I would say is that bottom-up opportunities remain. It is market that is still in the mood to re-rate if earnings come through, so that is a positive trend," said Anup Maheshwari - Head - Equities & Corporate Strategy, DSP BlackRock, in an interview with ET Now.

"We are still seeing a lot of domestic flow into the market, mainly because of lack of other options. So, you have to pick and choose. Unfortunately, the midcap space is not offering as much margin of safety as we would like to see, but there are interesting ideas in the large caps," he adds.

Maheshwari is of the view that the market will be driven more by bottom-up corporate earnings more than anything else right now.

Overall, analysts are of the view that the momentum looks positive. Downside seems limited to 8000-8200 and is a good time to start some long-term allocations.

Analysts advise investors to look at markets more from a medium- to a long-term perspective, because in the short term, range-bound movement is likely to continue, weighed down by both local as well as global events.

Reserve Bank of India's policy review in August, US Federal policy meet and distribution of monsoon are some key events which will cap upside for markets, say experts.

"Investors have to look at things from the slightly medium-to-long-term perspective. There are various issues like the monsoon or the parliament session, US Fed and the RBI policy meet on 4th of August which are lined up in the near term," says Sanjay Dongre, EVP & Senior Fund Manager at UTI Mutual Fund/UTI AMC.

"There is a big change which is happening in the Indian economy in terms of improvement in the fiscal deficit or current account deficit. This is thanks to falling commodity prices and pretty sharp decline in the crude oil prices," he added.

Dongre is of the view that the government is on the path of reforms and hopefully, all these things will reflect in the recovery in the domestic economy as well as the revival in the investment cycle in FY16-17.

"That is how the market is poised from the medium-term perspective. However, from the near-term perspective, these are events which are lined up which might not go in favour of market sentiment," he concludes.

Retail investors who are willing to invest in the market and are first-time investors should only invest with a time horizon of 1-2 years. And any sharp corrections should be bought into to lower the average cost of holding a stock in their portfolio.

"This period of volatility will be a great buying opportunity for those who have a 1-2 year view. With the kind of spending, which the government is doing, there will be growth ahead which will reflect in the December quarter earnings," ET said in a report last month quoting S Naganath, president and chief investment officer, DSP BlackRock Investment Managers.

Recent data showed that investment in equity mutual funds by domestic retail investors has hit the highest since 2008. Domestic net inflows into equity mutual funds in June were the second-highest ever - second only to January 2008 before the financial crisis took hold, according to data from the Association of Mutual Funds in India.

ET Now spoke to various experts on their top bets for the long term:
Analyst: Mayuresh Joshi, Fund Manager, Angel Broking

MBL Infrastructure:

The kind of expectations that the management has specifically from an FY16 perspective looks quite decent. Also, if I look at their standalone EPC business, the valuations appear quite reasonable as well. The cash flows appear decent for the latter part of FY16 and that will probably shore up the earnings estimates for MBL Infra.

LIC Housing Finance:

The valuations at the current levels are not too expensive and this is something that we like along with something like an LIC Housing Finance which has again posted excellent set of numbers in our opinion.

Tata Elxsi Ltd:

The stock has shown an exceptional move and again if you look at their business verticals, all their business verticals are doing exceptionally well, but the price movement has been fairly resilient.

Surya Roshni Ltd:

We believe that even though the steel business has been a big drag on the company's overall profitability, the LED business has done exceptionally well for Surya Roshni and clearly, EBIT margins that the LED business exhibits more or less offset the kind of losses that the steel business makes.

Analyst: Sudip Bandyopadhyay, President, Destimoney Securities Pvt Ltd

Larsen & Toubro Ltd:

The stock still looks very attractive. There are significant positives. The order book size has been always buoyant, execution is improving. With the government getting into small city development mode, they will be a big beneficiary.

The company is also talking about significant value unlocking by listing or brining in strategic partners in multiple businesses. Overall, for an investor, it is a no-brainer. They should buy Larsen & Toubro.

Analyst: Gaurav Mehta, VP, Institutional Equities, Ambit Capital

Tata Motors:

If we look at the overall valuation picture of Tata Motors, the domestic business contributes very little to the overall valuation, so it is predominately a JLR story. The stock obviously has corrected quite significantly over the last few months. It must have corrected by something closer to 33-34% from its peak and the reason for that has been that there has been this slowdown in China and overall in the luxury car market.

Our view is that the luxury car market overall should moderate versus the high 20s, early 30s growth that it has registered over the last few years to somewhere closer to 5-6% over the next few years.

But, Tata Motors will continue to gain market share. It has already moved to something like 6.6% in terms of its overall share in the luxury car market in China. We think that should move towards 7.5 over the next couple of years and the reason we believe a lot of the pessimism currently is misplaced, is the fact that these company-specific issues which have led to de-growth in the last few months will be resolved over the coming few quarters.

The correction has not completely been unwarranted but at these prices, we think it has more than factored in all the negatives. Now, after this correction, the stock must trade at something like 8.6-8.7 times FY17 earnings, even adjusting for their aggressive R&D capitalisation. So, we think that this is one of the very few deep-value plays available in the Nifty currently.

Lupin:

Pharma is a space which is not inexpensive anymore. It is decently expensive where there will be a few pockets that will continue to deliver outperformance. Lupin is one name we are willing to bet on.

We have been buyers on the name and we continue to think that that stock should be bought from a 12-month point of view.

We continue to be buyers on that name and which is why any weakness around it should be used as good buying opportunity.

Analyst: Daljeet Singh Kohli, Head of Research, IndiaNivesh Ltd

Infoys:

We have a buy rating on Infosys. This is a stock where you need to have conviction for longer time. If you believe that management is going to deliver in probably one, one-and-a-half years' time, then you should be with the stock. It does not matter if for one quarter, they can do numbers in line, with the expectation or not. One quarter number will not be very important, but longer-term direction will be important. Infosys, we have a buy with a target of Rs 1,180.

Idea Cellular Ltd:

In Idea's case, we are bullish. We believe that they are doing the right things. Their data packages are picking up well. Thus, they will be able to do data revenues better. There, we have a buy rating with a target of Rs 227.

Analyst: Sanjay Dutt, Quantum Securities

JSW Steel, Jindal Saw:

The entire group is looking good right now because I have a positive call on metals for the next two to three years. It is a contrarian strategy. So, we may have to bear the pain for a while but there is a potential to see a few multibaggers within the four-five Jindal stocks listed.

My sense is that all the negatives are already in the price, whether it is the pricing and the issues arising out of China, their debt which they managed to restructure or whether the political cloud.

The group has a lot of potential to go much higher from the current levels and risk-reward looks favourable. I do not think there is much of a downside left anymore in them, whether it is JSPL or whether it is JSW or even Jindal Saw for that matter.