Where to invest: Large cap or small cap? Motilal Oswal picks 13 stocks for May; check details
Despite global concerns, the domestic market structure remains positive on the back of healthy macro data, strong earnings, and recent FIIs buying investors are recommended to buy on dips as growth at reasonable valuations will continue to be the theme to generate returns in FY24.
PremiumThe benchmark Nifty 50 index recovered in April 2023 with a 4.1% month-over-month (MoM) rise following a sluggish run during the previous four months. Notably, the index was extremely volatile and fluctuated by 776 points before ending 705 points higher and regaining 18k levels.
Major sectors had gains at the end; the biggest gainers were Real Estate (+15%), PSU Banks (+12%), Automobiles (+8%), Capital Goods (+7%), and Telecom (+7%), with Technology (-3%) being the sole underperformer.
India was one of the best-performing markets in April of 2023. However, due to a variety of global macro challenges, including inflation, interest rates, and currency, it has been underperforming the developing markets and the global indices in CY23YTD. The Nifty 50 underperformed the Nifty Midcap 100 (+5.9% MoM) and the Nifty Smallcap 100 (+7.5%).
While DII inflows were barely positive, FIIs flows headed positive for two consecutive months.
"Despite global concerns, the domestic market structure remains positive on the back of healthy macro data, strong earnings, and recent FIIs buying. Even valuations are providing comfort. Thus investors are recommended to buy on dips as growth at reasonable valuations will continue to be the theme to generate returns in FY24," advised Motilal Oswal Financial Services Ltd (MOSL).
For May, here are the brokerage houses top large- cap and mid-cap picks.
Large Caps
ICICI Bank Ltd
MOSL has a target price of ₹1,150 for the bank stock, implying an upside of 24.1%. ICICI Bank is in a good position to provide consistent profitability because to its excellent asset quality and robust business expansion momentum. According to the brokerage, the bank would produce RoA/RoE of 2.2%/17.6% in FY25.
ITC Ltd
MOSL sees the cigarette stock rising 4.9% to ₹450.The recent quarters of healthy cigarette volume growth are projected to continue in the near future, resulting in the best three-year and four-year average volume growth in more than ten years. Because ITC has superior earnings visibility than its peers over the next few quarters, reasonable prices, and an alluring dividend yield, brokerages are bullish on the stock.
Larsen and Toubro Ltd
Given the record-high order book of ₹3.9 trillion, the bottoming out of infra margins, and the strengthening condition of the Hyderabad metro project, the brokerage loves L&T. Over the course of FY21–26, management aims to achieve sales and order inflow CAGRs of 15% and 14%, respectively, with a consolidated RoE of 18%.
HCL Technology Ltd
The brokerage's target price for the IT company is ₹1,250, representing an increase of 18.4%. With increased demand for Cloud, Network, Security, and Digital workplace services, portfolio resilience is improved by greater exposure to the Cloud, which accounts for a larger portion of non-discretionary spending. In a demand-constrained environment, the brokerage continues to see HCLT's defensive business as positive.
Ultratech Cement Ltd
MOSL sees the stock rising 12.7% to ₹8,600. The demand for cement was high in the fourth quarter of FY23, and it is still high in April 2023. The company had a significant volume growth across all areas. The brokerage predicts that over the years FY23–25, the company's consolidated volume will grow by 8%. In comparison to its EBITDA/t of ₹1,005 in FY23, we expect it to be ₹1,175/ ₹1,250 in FY24/FY25.
Oil and Natural Gas Corporation Ltd (ONGC)
MOSL sees the stock rising 34.1% to ₹215. ONGC is the best choice for 2023 due to enhanced earnings visibility. Additionally, throughout the previous three years, dividend payout stood at roughly 33%, and the brokerage anticipate this tendency to continue. For FY23E/FY24E, the brokerage anticipates a dividend yield of 13.6%/10.5%.
Mahindra & Mahindra Ltd (MM)
MOSL sees the stock rising 21.6% to ₹1,475 . The brokerage anticipates a 15%/20%/20% CAGR in MM's sales, EBITDA, and PAT for the period of FY23 to FY25. From 3QFY23 levels, MM expects room for margin growth in the Auto and FES industries. The brokerage anticipates a 15%/20%/20% CAGR in MM's sales, EBITDA, and PAT for the period of FY23 to FY25. From 3QFY23 levels, MM expects room for margin growth in the Auto and FES industries.
Mid Caps
Ashok Leyland Ltd
The firm has set a target price of ₹175 for the auto stock, which would represent a 21% upside. According to MOSL, Ashok Leyland is the strongest bet for the CV cycle revival, combined with market share recovery & increase of revenue/profit pools, due to its excellent financial position (lean cost structure & manageable debt). Over the company's fiscal years FY23E to FY25E, it anticipates a 61% CAGR in PAT.
Godrej Properties Ltd
The brokerage's target price for the real estate company is ₹1,575, which would represent a 19% upside. The company is close to achieving its 20% RoE objective on a pre-Covid equity foundation. According to the brokerage, Godrej Properties did well in business development in FY23, and if these projects are launched promptly, its RoE profile will significantly improve when they reach P&L in 3–4 years.
Mahindra and Mahindra Financial Services Ltd (MMFS)
The brokerage forecasts an upside potential of 11.5% with a target price of ₹320 for the NBFC company. Given its lengthy history, solid parentage, and strong liability franchise, MMFS has handled the pandemic's stress pretty well and is in a good position to meet its stated goals, according to MOSL.
APL Apollo Ltd
For MOSL, the stock will increase 22% to ₹1,450. According to the brokerage, margins are projected to improve as a result of the addition of high-margin items from the Raipur unit and a rising share of value-added products. It projects a revenue, EBITDA, and PAT CAGR of 17%/24%/31%, respectively, over the fiscal years FY22 to FY25, as the company is anticipated to continue growing in response to a favourable market outlook.
Vedant Fashion Ltd
MOSL forecasts a 17% increase in the fashion stock to ₹1,435. The brokerage claims that because of the franchisee-led expansion model, solid margins, a favourable return profile, and little balance sheet pressure. On the strength of a 15% increase in footprint addition and a 5% increase in SSSG (same-store sales growth), it projects revenue/EBITDA CAGRs of 20%/21% during the fiscal years FY23–25.
Metro Brands Ltd
A 13% increase is implied by MOSL's target price of ₹1,045 for the retail stock. According to the brokerage, Metro's outstanding store economics, great product portfolio, and strong balance sheet/FCF efficiency merit a high valuation. Over the period of FY23–25, it anticipates a revenue/PAT CAGR of 23%–21%. Metro, unlike its competitors, did not preempt the EOSS (end-of-season sale) because it continued to have strong growth.
"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!
