Six Must-Have Stocks in Your Portfolio: Dron Capital

Action in markets have shifted to mid-and-smallcap stocks after the BSE Sensex and the broader Nifty rallied to record highs as Narendra Modi won a landslide win in elections.

In an interview to NDTV, Pathik Gandotra of Dron Capital says investors need to focus on stocks which have earnings visibility in the near term.

To capitalise on the current bull run, Mr Gandotra advises investors to buy stocks in small chunks over a period of two to three months as markets may witness some correction in the near term.

Here are six stocks, which investors should add to their core portfolios, Mr Gandotra says.

1) SKS Microfinance: Buy for 25-30 per cent return in next 5 to 6 years. It is the largest finance company in the microfinance segment. This stock has been beaten down due to problems in Andhra Pradesh, but after that crisis this sector is coming back. There is less regulatory intervention now. Though the RBI has capped spreads for microfinance companies, it is a decent spread for the company to prosper.

2) Ceat: The new management has turned the company completely. It also has a much diversified product portfolio. Rubber prices are at all-time low and no further capacity expansion is expected in the tyre industry. Once rupee stabilizes, margins of the company will go up. The stock can go up by 50 per cent in one year.

3) TVS Motor: The stock is currently trading at 12 times its FY 15 earnings as compared to 18 times for its larger peers like Bajaj Auto and Hero Motocorp. PE multiple expansions are yet to happen in the stock. TVS had a very successful scooter launch and they have a lot more in the pipeline. This company has a very high level of operating leverage which will yield result when sales will grow. Also there is an excise benefit which will give result in a growing economy. As lending rates come down financing cost of two wheelers will also come down and TVS Motor will benefit from that.

4) ING Vysya Bank: This bank has very low non-performing loans (NPL). Its net NPL is almost zero as it has almost 80-90 per cent coverage against bad loans. NIMs (Net Interest Margin) are improving steadily. This stock has underperformed in the recent rally and it is currently trading at 1.5 times its FY15 book value which can go up to 3 times. This stock had outperformed in the last crash in banking stocks from January 2013 to August 2013 by correcting only 30 per cent as compared to other banks which corrected over 50 per cent.

5) Aurobindo Pharma: The stock still trades at 11-12 times its earnings compared to 20 times for other pharma companies. The stock is still to see a multiple expansion. The company has also got new FTFs (First to File). Earlier this company was in to niche segment but now the company is venturing into new segments and limited competition products. In last three years its ebitda has doubled and the same is expected to happen in future.

6) United Phosphorus: Its earnings are likely to go up significantly from here because of the acquisitions they have done in last few years. Q4 numbers have already reflected the trend. The company is also cutting down on its debt and generating free cash flows. Valuation wise, the company is trading at 11 times its FY15 earnings, which is still cheaper.