Macquarie’s Top 10 Stock Picks In India Amid Market Turmoil

Even as Indian equities track the worst global selloff in more than a decade after the coronavirus outbreak, Macquarie finds value in select pockets.

The Covid-19 pandemic has stalled economic activity and the International Monetary Fund has already declared a recession. In India, it disrupted an economy that's set to grow at its slowest pace in a decade. The S&P BSE Sensex and the NSE Nifty 50 have so far tumbled more than 30 percent each from their January peaks, with 90 percent of the stocks in the benchmark recording losses, as the number of cases of infection breached the 2,000-mark, including more than 50 deaths.

Yet, amid this deep rout, the Sydney-based investment banking company is bullish on 10 stocks, which it picked using a “bottom-up approach”, or a method that considers individual characteristics and abilities of companies.

Here's what Macquarie has to say…

GAIL India

• GAIL India's share price builds extreme pessimism, fears overblown.
• Currently trading at 50 percent discount to Macquarie's fundamental bear case valuation.
• Ramp-up of two new pipelines; optionality from potential gas sector reform.

ICICI Bank

• Sees loan growth of 8.5 percent in FY21.
• Expects delinquencies in retail portfolio to be contained.
• SME could be a risk factor to credit costs.
• Bank has an excellent deposit franchise.

Petronet LNG

• Sees a short sharp volume recovery post lockdown.
• Continues to see Petronet LNG as a steady compounder.
• Catalysts: Dahej expansion ramp-up, Kochi ramp-up, tariff compounding, income on growing net cash position.

HDFC Bank

• Sees 12 percent loan growth post Covid-19 even in a bear case scenario in FY21.
• Assumes credit costs to 2.3 percent on the base of 1.3 percent year-on-year.
• 80 percent of unsecured loans towards salaried employees; these employees have a better ability to repay.
• Pain from agriculture segment unlikely to impact HDFC Bank significantly.

HCL Technologies

• Company has relatively lower exposure to banking, financial services and insurance (21 percent of revenue).
• Well diversified business mix with software services.
• Steady deal momentum, strong business continuity plan.
• A much longer shutdown in the U.S. poses a risk.

Cipla

• Steady growth visibility, recalibrated capital allocation and attractive valuations.
• Strong branded franchises in India and South Africa are growing at a healthy pace.
• Expects it to resume niche U.S. launches (four in the near-term pipeline) in the next few weeks.
• Well-positioned to monetise its respiratory portfolio in developed markets is a structural opportunity.

Infosys

• Successful execution of strategy under new CEO is yielding results.
• Company's organic growth is faster than the industry.
• Strong net cash balance and dividend yield.
• A much longer shutdown in the U.S. poses a risk.

Hindustan Unilever

• Home care can benefit in the near term on account of stock piling.
• Long-term positive trends seen in personal wash, packaged goods.
• Glaxo SmithKline merger provides strong platform in food and nutrition.
• Strong distribution and investments in digital transformation.

Also Read: India's Top Corporates Have Lost Rs 20 Lakh Crore Market Cap In 2020's Rout

UltraTech Cement

• Asset-based valuation of $128 per tonne, which is a five-year low.
• Company has a lower 5-10 percent replacement cost.
• Diversified geographical presence, strong brand distribution network.
• Near-term volume growth outlook remains muted.

Also Read: In Charts: The Worst Fiscal In 11 For Indian Stock Market

Dr. Reddy's Laboratories

• Expects double-digit growth without factoring in big-ticket U.S. launches.
• Ongoing efforts on rationalising costs, improving asset utilisation to boost cash generation.
• Expects momentum in Europe to stay strong.