Diwali 2023 stocks: Reliance, GAIL, Dr Reddy’s among top 10 buys from HDFC Securities

The Indian stock market has made a strong impact since Diwali last year. While the Nifty 50 is up around 9%, the broader market has underperformed since last Samvat.

The Nifty Smallcap 100 and Nifty Midcap 100 indexes rose 28% and 26% respectively. Among the sectors, the PSU banking index increased by 44% and Realty increased by 37% while the oil and gas index was the only one to end in the negative (-2%). Going forward, HDFC stock is expected to remain volatile until the first half of 2024, although the results of state and central elections will be closely watched as a result of two geopolitical events.”Although local fund inflows remain strong, we expect a rebound in FPI once the global risk appetite recovers.

 

We continue to promote domestically oriented businesses and opportunities in sectors such as materials, pharmaceuticals, oil and gas, small finance banking, petrochemicals, consumer, energy, EPC, and restructuring for the coming year,” HDFC Securities Retail Research said in a report. With a focus on these themes, the broker has revealed its 10 Diwali stocks for Samvat 2080.HDFC Securities Diwali stock picks include Dr Reddy’s Laboratories, Equitas Small Finance Bank, GAIL (India), Godrej Industries, Grasim Industries, Gujarat Alkalies & Chemicals Ltd Chemicals, Indian Oil Corporation, Kalpataru Projects International, Reliance Industries and United Spirits. These stocks have strong fundamentals and some margin of safety in their valuations to offer superior returns to investors, HDFC Securities Retail Research said.

 

Dr Reddy’s laboratory | Purchase Period: ₹4,850-5,400 | TP: ₹6,250

HDFC Securities expects Dr Reddy’s US business to grow at a CAGR of 11% over FY23-25E including sales of gRevlimid. Overall, it estimates a 10% CAGR in sales led by strong growth from the US and domestic modeling businesses.

Operating margins are expected to remain at around 26.5-27.5% on the back of niche opportunities in the US segment. Net profit is expected to see a 16.5% CAGR led by healthy revenue and strong performance over the same period. Broker recommends ‘Buy’ in Dr Reddy’s Laboratories in the tab of ₹4,850-5,400 for the target price ₹6,250 per share till next Diwali.

 

Equitas Small Finance Bank | Purchase Period: ₹82-92 | TP: ₹112

The broker has forecast 24% CAGR in net interest income (NII) and 31% in net profit during FY23-25E, while the loan book is expected to grow at 27% CAGR during the same period. As collection efficiency improved and economic activity accelerated, asset quality improved dramatically.

ROAA is expected to improve to 2% by the end of FY25E. It can show a steady improvement in the rate of return driven by growth and volatility, the brokerage house said.It is recommended that investors buy stocks in ₹82-92 bar for target price of ₹112 per share.

 

GAIL (India) | Purchase Period: ₹106-120 | TP: ₹140

GAIL’s leadership position in natural gas transmission business, cost efficient operations, experienced management, decent dividend yield, attractive valuation and good financials are the major advantages offered by the stock apart from decent dividend yield. A strong domestic supply environment, improving margins for the trading segment and favorable price scenario of the LPG and petrochemical segments are likely to significantly improve consolidated EBITDA over FY23-25E, HDFC Securities said.

It expects EBITDA and PAT to grow 48% and 46.4% for FY24E, and 13.5% and 13.4% for FY25E, respectively.Investors can buy stocks in ₹106-120 bar for the goal of ₹140 (10x FY25E EPS & 8.8x FY25E EV/EBITDA) till next Diwali, it said.

While the standalone business faces some pressure in the short term, its consumer products and real estate subsidiaries are doing well and the outlook remains healthy, said retail research at HDFC Securities. It is expected that the unlocking of value due to the sharing between the brothers and holding the company’s discount may be too narrow.

Brokers recommend buying stocks in ₹555-624 tab for the goal of ₹The price is 735 baht

 

Grasim Industry | Purchase Period: ₹1,700-1,925 | TP: ₹2,275

Brokers believe that while the standalone business of Grasim Industries faces some pressure in the short term, its cement and financial services subsidiaries are still doing well and the outlook remains healthy.

The company’s rapid growth in paint is likely to provide further growth in the legs and could lead to a rerating of the stock as it reduces the share of the commodity business in favor of the branded paint business, it said.It suggests investors can buy stocks in ₹1,700-1,925 bar for the goal of ₹2,275 till next Diwali.

 

Gujarat Alkalies & Chemicals | Purchase Period: ₹638-718 | TP: ₹875With the continued rise in caustic soda prices and lower energy costs, the brokerage house expects the company to register strong earnings growth in FY25E. At CMP, the stock trades at 13x FY25E EPS. Investors can buy stocks in ₹638-718 bar for target price of ₹875 (16x FY25E EPS) till next Diwali, it said.

 

Indian Oil Company | Purchase Period: ₹78-90 | TP: ₹103

The investment value of the Indian oil company and non-core assets account for almost all of self We expect IOCL’s strong earnings momentum to be sustained in the coming quarters, supported by several drivers, HDFC Securities said.

It expects earnings to continue to improve as stable demand in the petrochemicals segment allows for a turnaround. With a broad and superior marketing mix, the brokerage firm believes that continued demand for petroleum products and lower crude oil prices will continue to increase profitability.It recommends buying stock in ₹78-90 bar for the target price of ₹103 per share. 

 

Kalpataru International Project | Purchase Period: ₹580-660 | TP: ₹795

Kalpataru Projects International is expected to report revenue, EBITDA and PAT growth at a CAGR of 18%, 27% and 36% during FY23-26E. The stock trades at an attractive valuation of ~9x FY26E EPS, which is at a significant discount to its Indian peers. The price reduction may be due to lower contribution from the Indian region, brokers said.

As of June 2023, the company’s order book stands at ₹47,332 crore indicating strong visibility of 3.3x of FY23 revenue. The company’s healthy bidding pipeline points to a positive outlook for business productivity.Investors can buy stocks in ₹580- 660 bars for the target price ₹795 (10.5x FY26E EPS) till next Diwali, according to HDFC Securities Retail Research.

 

Dependency Industry | Purchase Period: ₹2.075-2,32 | TP: ₹2,695

Reliance Industries’ Retail, Telecom, and New Energy are poised to become the growth drivers to come over the next two to three years, due to massive technological advancements and ambitious growth targets. The company is expected to report consolidated revenue, EBITDA and PAT CAGR of 13.5%, 12.3% and 10% during FY23-25E, according to HDFC Securities.

It said investors can buy Reliance Industries shares in shares ₹2,075-2,325 bars for the goal of ₹2,695 till next Diwali.

 

United Spirits | Purchase Period: ₹915-1,040 | TP: ₹1,195

United Spirits will continue to focus on driving profitable growth, led by double-digit topline growth; Sustainable A&P investment; Price updates and premium mixes; and increasing productivity, the broker said.

Investors can buy stocks in ₹915-1040 bars for the goal of ₹1,195, it added.