Motilal Oswal’s top stocks for Diwali 2020 with up to 35% upside

As we enter Samvat 2077, the markets have seen a complete recovery from the Covid lows, in-line with the improving data points and positive corporate commentary. More importantly, covid-19 cases have seen a meaningful decline. Improved corporate earnings have also buoyed the market sentiments. "We expect Nifty EPS growth of 4% in FY21 while expecting a sharp rebound in FY22. Thus, the overall structure of the market remains positive. At 18x FY22 earnings, Nifty valuations is also not very expensive as it is trading closer to its long-period averages. With the economic activity recovering fast, more earnings upgrade cannot be ruled out," says Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.

The brokerage house believes, further strong global markets can keep the liquidity abundant in the system, thus providing support to the overall market. However, intermittent corrections cannot be ruled out as there is a risk of second wave of Covid-19 and thus sustenance of economic recovery holds the key.

From next 12 months perspective, the brokerage is positive on IT, Healthcare, Rural-Agri, Telecom, Consumer along with select financials. "We believe another round of fiscal stimulus could help elevate sentiment further," says Khemka.

Here are the top stock recommendations by Motilal Oswal Financial Services where the brokerage sees an upside of more than 20%.

Bharti Airtel

CMP: ₹480, Target Price: ₹650, upside of 35%

Bharti’s execution has been top-notch in the last few quarters, evident from strong 16% India Mobile EBITDA growth cumulatively in the last two quarters. Robust 10m subscriber adds lead to cumulative ARPU improvement of 5%.

State Bank of India

CMP: ₹229, Target Price: ₹300, upside of 31%

We believe the earnings normalization cycle for SBI has begun and it remains the best play among the PSU banks, on gradual recovery in the Indian economy, with a healthy PCR of 71%, robust capitalization, a strong liability franchise, and improved core operating profitability.

Hero Motocorp

CMP: ₹3,086, Target Price: ₹3,700, upside of 20%

HMCL is poised for faster recovery over other 2W peers due to its rural-focused portfolio and market leadership in the entry and executive segments. Considering its improved competitive positioning post BS6, HMCL should continue to see good demand with its economy-executive focused portfolio.

Infosys

CMP: 1,118, Target Price: ₹1,355, upside of 21%

We expect Infosys to be a key beneficiary in terms of recovery in IT spends in FY22. Infosys remains our top pick within the sector given its headroom for margin expansion and strong deal wins.