Christmas stock picks: SBI, Kotak Bank, Bharti Airtel, Allcargo Logistics, Power Grid, Tejas Networks and more

Several money managers have opined about buying stocks with strong fundamentals while avoiding momentum plays.

“Investors should clearly invest at lower levels on every fall in good quality stocks. From here on, the stock selection will be the key,” said Arun Malhotra, Founding Partner and Portfolio Manager, CapGrow Capital Advisors.

Banking and mortgage financers, IT & telecom, real estate, and building materials are likely to do well, according to Malhotra.

“We prefer private banks ICICI Bank, Kotak Bank, and SBI in the PSU space. The banking sector is coming out of a long down cycle and we believe we are at the start of an upcycle in credit growth, while the asset quality concerns have been addressed through adequate provisions. Rather, there might be some writebacks in a few cases,” he said.

Malhotra likes Bharti Airtel in the telecom space as the majority of the recent tariff hikes will flow into EBITDA as operating leverage kicks in. He also likes Housing Development Finance Corp as it is the leader in mortgage financing and the real estate sector has gathered momentum after 10 years of a lull period, he explained.

The markets at this point in time are certainly slightly on the higher side. Although, occasional corrections are bound to happen since our market is a great ‘leveller’, said Suraj Nair CIO of MoatPMS.

But, more than that, the effects of this COVID pandemic will bring in a lot of uncertainties, so, “corrections are bound to happen here and there”, he added. Most of the promoters in the current bull market have, to a huge extent, deleveraged the balance sheet of their firms and have become much more efficient as well. “So corrections may happen based only on the valuations of the stock but we certainly do not expect a systematic collapse like back in 2008,” Nair believes.

He is of the view that in the next 10 years, the composition of Indian indices would change drastically and new businesses would feature in the indices. Nair sees stocks such as Mahindra Logistics, Tejas Networks, TARC, Heranba Industries and Mahindra Lifespace as good investment bets.

He highlighted that Mahindra Logistics, an end-to-end logistics player with its main line of business of mobility and logistics aims to grow over four times in the next 5 years, while Tejas Networks which is into global networks gear market operating under the Tata management sees a very large opportunity in the telecom sector both in India as well as the global markets, with a new cycle of investments in 5G and fiber-based broadband rollouts.

Meanwhile, TARC is a real-estate development company with sandbanks in New Delhi metropolitan area under able leadership, new business incentives, and deleveraging will drive the growth to a higher trajectory, Nair pointed out.

Heranba Industries, an agrochemical company, aims to grow revenue more than 3 times in the next 4 years and Mahindra Lifespace, the real estate arm of the Mahindra group division, is on a fast-track plan to triple their sales in the next 3 years, he reasoned.

“Signs of fuller restoration of public health, easing supply-led challenges, improving demand and policy support are key factors that will contribute to continued robustness in corporate earning scorecards. In the near term, broader markets could witness sharp volatility on the back of adjusted economic policies, inflationary shocks, and possibilities of emerging risks to public health. However, in the longer term, the Indian economic and corporate resurrection story remains intact,” said Nirav Karkera, Head of Research at Fisdom.

Karkera expects sectors strongly associated with investment cycles to fare well in the near term. He believes infrastructure, capital goods, basic materials, utilities to benefit from the imminent offtake in public capital expenditure cycle.

Further, as demand regains health and supply responds, financial services will also benefit from the rejuvenated flow of money within the economy along with consumer cyclical, he added.

“Select private banks with strong technology suite, higher share of corporate borrowers and solid lending practices offer strong turnaround potential in the year to come,” Karkera said.

Additionally, manufacturing-heavy enterprises who have been able to successfully deleverage in the past year and have the ability to scale existing operations could do well as operating effciencies also contribute to the bottomline, he added.

“Public Sector Undertakings (PSUs) have been underperforming since the last decade and with government’s push, these can perform better. Infact, there are some businesses which are doing well and with government support, these companies will have better risk-reward ratio,” said Rohan Mehta, CEO and Fund Manager, Turtle Wealth.

Mehta likes Allcargo Logistics which has a strong structural story and is trading at an attractive valuation and also likes Power Grid Corporation of India that has about 75 percent market share in power transmission business and offers good dividend.

Polyplex Corporation is another stock that he believes will perform extremely well in the coming year. The company is a good play on Electric Vehicle (EV) story, valuations are reasonable, management is decent and dividend yield is also attractive which makes Mehta believe Polyplex is a good investment idea.

He believes State Bank of India will do better than peers which would make the stock a wise investment option.

Lastly, he believes Bigbloc Construction which is in the business of manufacturing of building blocks and Aerated Autoclave Concrete bricks, has the potential to grow tremendously.