What Stocks To Add As Free Fall Continues on D-Street? Bears tightened their grip on the Indian stock markets as fears of aggressive interest rate hikes spooked investors on Monday. Data showed US inflation at a fresh 40-year high in May at 8.6 per cent, weakening the narrative of ‘peaking inflation’ and opening up doors for aggressive Fed rate hikes ahead. BSE S&P Sensex tumbled over 1,400 points to 52,860 levels, while the Nifty50 broke below 15,700 levels on Monday, June 13.
According to Nomura India, “Friday’s hotter-than-expected month-on-month core CPI print in the US means that the peak-inflation narrative, for now, is delayed with the Fed likely to remain on the hawkish path until monthly inflation shows clear signs of sequential slowing.”
The FOMC will be the main event coming week, where our economists look for 50bp hike and Chair Powell likely signalling a fourth 50bp hike in September, it said.
Siddharth Sedani – vice president, Equity Advisory, Anand Rathi Shares and Stock Brokers, said: “Two things have hit India Inc.’s profitability. One, the spike in interest rates, and two, the rise in input costs. The former has cast a huge shadow over companies that borrowed heavily. The ones with little or no debt on the books will steer clear of the storm. With the uncertainty around interest rates expected to persist for some time, will make more sense for investors to stick to zero- or low-debt stocks. When interest rates are on the rise, the servicing debt becomes increasingly expensive and it eats into a company’s profit, companies with low or zero debt are in a much better shape in such a scenario.”
Companies are facing a double whammy from a decline in margins, first being a rise in the interest rate and secondly higher raw material and energy prices.
“Companies with lower levels of debt in the rising Interest have tended to outperform and are best value creators. When the cost of capital for the company is lower, the future cash flows of the company get discounted at a lower rate of discount. That implies higher valuations for the company and appreciation in the price of equity share,” Sedani said.
According to experts, in the current environment, debt-free companies offer a safer investment alternative, Low debt companies are the best bet for investment when there is instability on all fronts that is to say interest rates, geopolitical turmoil & other factors like crude petrol price.
Here Are a Few Stock Recommendations to Protect Your Portfolio From the Market Fall by Anand Rathi Shares and Stock Brokers
CRISIL – Target Price – Rs 4000
Crisil Limited is India’s foremost provider of ratings, data, research, analytics and solutions with strong track record of growth and global footprint. The company delivers independent opinions, actionable insights and efficient solutions to over 100,000 customers. We believe the company will maintain its business growth momentum, driven by its investments in talent and technology, recovery in economic activities, new product offerings and solutions.
Container Corporation – Target Price – Rs 780
Concor is the dominant player in the CTO business (65 per cent market share) with ~60 terminals. Revenue from rail transportation comprised 75 per cent of total revenues (rest 4 per cent by road, 13 per cent via handling income, 2 per cent warehousing and 4 per cent others). The Company is planning to add ~246 rigs and around ~50,000 containers in next three to four years. During FY22, the company have added 2 terminals and is planning to add 5-6 terminals during FY23. Multiple triggers are in place for the stock like higher double stacking (46 per cent jump in FY22 to 3757 trains), running rakes with higher axle loads, targeting 1 million TeUs container run rate at Khatuwas (MMLPs), DFC connectivity to Dadri, JNPT, diversification into other logistics verticals.
Data Patters – Target Price – Rs 881
The company after successfully demonstrating the design, development and delivery of components and products for various defence projects and platform companies is now planning to scale up its operations and enter new areas like system integration from pure component or product suppliers. The company has envisaged upgrading its existing facilities, doubling of floor area and manufacturing capacity, the addition of large & heavy equipment, and integrating of large radars & mobile electronic warfare systems. With established capabilities and expertise in the defence sector, a strong thrust in Make in India, and higher budget reallocation in defence the company is in a sweet spot for higher than normal growth in revenues in next few years.
IEX – Target Price – Rs 270
IEX achieved good business performance in FY22 accomplishing 102 BU volume across all market segments and seeing about 37 per cent YoY growth. IEX is pro-actively working towards commencing Longer Duration Contracts in both electricity and renewable energy, National Open Access Registry, Ancillary Markets, Gross Bidding Contracts, and Capacity Markets, and are optimistic about commencing these segments in FY23.
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