RIL, ICICI Bank among 5 brokerage picks that can return 11-17% in 8-12 months

The market made moderate gains in the week ended November 8, as the bulls lost some footing after Moody's, citing growth concerns, downgraded India's credit outlook to negative from stable.

The correction was warranted as there has been a rally of more than 4 percent since Diwali. In fact, the market has surged nearly 13 percent to scale a new high on the Sensex since September 20, the day the Finance Minister cut the corporate tax rate to 22 percent and came out with other measures to boost growth.

The market is likely to continue to march upwards, especially after Q2 earnings and consistent FII inflow, but if a correction happens intermittently, it should be used as a buying opportunity because a correction during a bull run is always healthy, say experts.

"It is important to understand that Moody's had only lowered the outlook and not downgraded India's credit rating. In the present global context of extensive fiscal stimulus to counter the slowdown, slight fiscal slippage is not a serious issue. Lowering the outlook of companies has nothing to do with their business prospects. Investors need not worry," VK Vijaykumar, Chief Investment Strategist at Geojit Financial Services, told Moneycontrol.

The rally was there for the long term and there might be some corrections in the short term, Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor, said. “However, with good set of numbers from Q2FY20 along with easing of tensions in the US-China trade war and Dow Jones reaching an all-time high, we can expect a rally of 12-15 percent from current levels in the next one and half years," said.

The retail business has grown phenomenally, registering a seven-fold increase in revenue and a 14-fold increase in profit in the last six years. Jio has already become the largest operator in India and still signing up more than 10 million new customers each month.

On the strength of RIL’s existing and new growth engines, the company is confident of growing this by 15percent annually over the next five years.

RIL has received strong interest from strategic and financial investors in its consumer businesses, Jio and Reliance Retail. The company will induct leading global partners in these businesses in the next few quarters and move towards the listing of both these companies within the next five years, which will result in a significant value unlocking.

With the investment cycle likely having peaked, we expect return on investment (RoI) trajectory to improve going forward. Jio is now prepared with the rollout of the other revenue engines – IOT, home broadband services, enterprise broadband service and broadband for small & medium businesses. The company will start generating revenue from these businesses from FY20. At CMP, the stock is trading at 18.1x FY16E earnings and 14.7x FY17E earnings respectively. We recommend a buy on the stock with a target price of Rs 1,610 per share.

The management has given guidance to achieve a consolidated return on equity (RoE) target of 15percent by June 2020. Considering the strong brand franchise, improving asset quality trends and strategy focus, the bank is well poised to deliver consistently with improving return ratios.

We expect the company to grow its standalone (net interest income) NII at a CAGR of 17 percent over the next two financial years. Healthy advances growth and cross-sell opportunities in the high-quality deposit franchise will help in delivering strong NII.

On the profitability front, we expect the company to report standalone PAT (profit after tax) CAGR of 111 percent over the next two financial years. Lower credit cost along with healthy advances and NII growth will help in delivering strong profitability.

We believe ICICI Bank is favourably positioned to deliver superior profitability and return ratios. We initiate our coverage on ICICI Bank, with a buy rating and a target price of Rs 569 per share.

The bank has said it is trying to push for deposit mobilisation and hence, has been steadily increasing deposits to support loan book growth. Adjusting for the cash management-related inflows, which are outside of the deposit accounts, and the long-term institutional funding, the credit-deposit ratio comes down to 75 percent.

Considering the strong positioning, healthy balance- sheet growth and superior asset quality and management, we believe the bank is well poised to deliver consistently with margin leadership and robust return ratios. We continue to remain positive on the company over medium to longer-term perspective and maintain our buy rating on the stock, with a target price of Rs 1,410 per share.

With the strong operating metrics, stressed asset resolution and robust return ratios, the stock is expected to move further. Retail banking continues to be the bedrock of bank's financial performance and strong execution, robust distribution and digital proliferation would help the bank gain strong market share and improve customer experience. Thus, it is expected that the stock may see a price target of Rs 856 in eight to 10 months’ time-frame.

The company has strong and steady revenue growth momentum and sustainable margins. It shall continue to focus on growing the penetration in the current operating areas by increasing the PNG connections and additional CNG stations while tapping the untapped potential by the expeditious rollout of the distribution network in the newly acquired areas as well.

With this focused endeavour, GGL shall continue its efforts in providing clean-fuel solutions across all operational area to augment an energetic topline and bottom line in the coming years. Thus, it is expected that the stock will see a price target of Rs 223 in eight-10 months.