Stocks to Buy in July: Sensex and Nifty corrected by more than 8 per cent each in June 2022, recording their worst monthly performance since March 2020. Still, the weakness might not be over. While the broader market adopted a more cautious approach during the month, Mid and Small Caps declined by 7 per cent each MoM. Overall, similar to May’22, Jun’22, too, turned out to be a volatile month led by weaker global cues such as higher inflation print in the US market, a rise in US 10-year bond yields, and a 75 bps rate hike undertaken by the US FED to curb inflation. Two pivotal events, the RBI MPC and US FOMC meeting were due in Jun’22 and are over now, providing some clarity amidst the rising uncertainty.
Analysts at Axis Securities said: “In line with the expectations, all central banks are now focusing on controlling the inflationary pressure by front-loading the rising rates in the next six months. Keeping this in view, how the sustainable demand scenario pans out in the near term needs to be keenly watched. In any case, we foresee inflation touching higher levels in the next couple of months but believe it would be followed by some moderation in the forthcoming one or two quarters.”
Axis Securities has picked up top trading ideas for the month of July – ICICI Bank, Bajaj Auto, Tech Mahindra, Maruti Suzuki India, State Bank of India, Bharti Airtel, Cipla, Federal Bank, Varun Beverages, Ashok Leyland, Astral Ltd (India), Bata India, APL Apollo Tubes, HealthCare Global Enterprises, Praj Industries, CCL Products (India).
A few of these stocks from the July basket are listed below:
ICICI Bank (ICICIBC) is one of the largest private sector banks in India with business operations spread across Retail, Corporate, and Insurance, among others. The bank has been outperforming its peers and has been ticking most boxes on growth, margins and asset quality. Higher loan growth, improving operating profits, and a strong provision buffer coupled with a strong deposit
franchise will help the bank achieve ROAE/ROAA expansion over FY23-24E. On the valuation front, we believe the bank continues to be on a comfortable footing. We maintain a BUY on the stock with a revised target price of Rs1,000/share (SOTP basis core book at 2.8x FY24E and Rs 173 Subsidiary value).
Bajaj Auto (BAL) remains the 2nd largest player (19 per cent market share) in the domestic motorcycle segment and continues to be the largest exporter of two-wheelers (2W) in India. Bajaj Auto seems to capitalize on demand normalization and premiumization trends in the 2W industry which should support profitability and operational performance going forward. Moreover, we expect the company to gain further growth in exports, driven by its market leadership position, brand equity, and enhanced distribution network. Bajaj Auto remains our preferred pick in the 2W segment given reasonable valuations and strong medium-term growth prospects. We maintain our BUY rating on the stock and value it at 17.5x FY24E EPS to arrive at a Target Price of Rs 4,350.
Tech Mahindra is India’s leading IT services provider to many business conglomerates. We believe Tech Mahindra has a superior services mix and multiple long-term contracts that are well-spread across the verticals, reducing its dependency on any one vertical. Furthermore, we foresee healthy tractions in Communications and Enterprise verticals which will greatly accelerate the company’s revenue growth moving forward. We recommend a BUY rating on the stock and assign a 20x P/E multiple to the company’s FY24E earnings of Rs 83.7/share to arrive at a Target Price of Rs 1,700/share. TP implies an upside of 70 per cent from CMP.
Maruti Suzuki India Ltd (MSIL) is the market leader in the domestic passenger car industry commanding a market share of about 45 per cent. New launches, targeted at filling the gaps in its portfolio, are likely to improve the overall product mix. The company would gain further market share, driven by an expected shift towards petrol & CNG vehicles. Going forward, we expect new product launches to resume with a mix of product upgrades and new model launches. We expect the company’s volumes to witness a strong growth CAGR of 16 per cent over FY22- 24E. We have a BUY rating on the stock with a Target Price of Rs 9,800 valuing the stock at 27x its FY24E EPS.
State Bank of India
State Bank of India (SBIN) is the largest public sector bank in terms of assets, deposits, branches, number of customers, and employees and has a pan-India presence as well. Amongst the PSU banks, SBI remains the best play on the
gradual recovery of the Indian economy on account of its healthy PCR,
robust capitalization, a strong liability franchise, and an improved asset
quality outlook. We believe normalization in credit costs and improved
growth outlook should lead to double-digit ROEs of 14-15 per cent over
FY23-24E. In this backdrop, we maintain a BUY rating on the stock with
a revised target price of Rs 665/share (SOTP basis core book at 1.3x
FY24E and subsidiaries at Rs 185)