With growth concerns still looming and limited comfort on valuations, HSBC analysts have identified five high conviction stocks that offer strong profitability and earnings visibility, driven by structural growth factors. These stocks are Reliance Industries Ltd., TVS Motors Company Ltd., Shriram Finance Ltd., ICICI Bank Ltd., and Adani Ports and Special Economic Zone Ltd.
TVS Motors has corrected 20% since September 2024, and the company seems poised to benefit from a recovery in rural demand in the short term, the brokerage noted. Shriram Finance stands out for its robust asset quality and is projected to maintain mid- to high-teens AUM growth, the note said.
ICICI Bank offers a combination of stronger-than-sector growth, superior asset quality, consistent earnings delivery, and healthy profitability. Similarly, Adani Ports is viewed as a long-term proxy for India's trade and infrastructure growth, as per the brokerage.
The brokerage also pointed that that the policy backdrop has turned more favourable, with government spending picking up and the RBI cutting rates, injecting liquidity, and easing regulatory hurdles. A weaker dollar and softer inflation open the door for further rate cuts, with one expected on Wednesday as Monetary Policy Committee concludes its meeting soon.
But looking at private capex spending and urban consumption, HSBC said "we believe growth concerns will linger for some time."
The brokerage also said that rising competition across various sectors poses a significant medium-term risk to corporate profitability. Additionally, the reaction of local investors to the market's weak performance is another concern. While they have shown resilience up to now, early signs of pessimism are beginning to emerge, it said.
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