One of the questions that investors face often in their lives is which stocks would be best suited for long term holdings in the booming sectors of the economy. While technical analysis can only help in predicting relatively short-term movement of stocks, a fundamental analysis gives the projection of a long-term goal for the company’s stocks.
This is determined by many factors and can be understood in a top down or bottom up approach. The basic understanding of fundamental research can be obtained from the following video.
Keeping in mind these factors, here are a couple of stocks which you can buy for long term.
1. ICICI BANK LTD (BUY):
Growth in banks are majorly categorized by higher income and lower NPA’s (Non-Performing Assets). With the recent quarterly results posted by ICICI BANK, there was a sharp uptick witnessed in the net interest income. The bank’s net interest income rose by 27 per cent to Rs 7,737 crore instead of Rs 6,102 crore in the same quarter last fiscal. The net profit stood at Rs 1,908.03 crore for the quarter April- June instead of a net loss of Rs 119.55 crore for the corresponding quarter last fiscal.
The private lender saw a decline in bad loan ratios. The Gross NPA ratio declined to 6.49 per cent as against 8.81 per cent last fiscal, while net NPAs reduced to 1.77 per cent from 4.19 per cent. The provision coverage ratio improved to over 74 per cent.
The bank has not only reported improvement in asset quality but also in its management. Also, the investors have a clear outlook on the company. We recommend to buy ICICI BANK LTD with a target price of 472 representing potential upside.
2. DABUR (BUY):
Dealing in diversified consumer product portfolios, catering to different segments, the company has been successful in driving optimism by delivering strong financials in its Q1 FY20 despite of the consumption slowdown. It reported a 10.3% increase in consolidated net profit, standing at Rs 363.81 crore for the quarter April to June as against Rs 329.22 crore in the same period last fiscal.
The consolidated revenue from operations grew by 9.3% to Rs. 2,273.29 crore against Rs 2,080.68 crore in the same period last fiscal. Dabur’s domestic as well as international business contributed towards growth. The domestic business grew by 9.6% (YoY) backed by high trade promotions while the international business grew by 6% (YoY).
The management’s decision to sharpen its focus on expanding their rural footprint, investment in key brands and focus on e-commerce have been rudimentary elements for attributing growth. Further, the company resides its focus on expanding the product portfolio by launching new Babool Ayurvedic toothpaste which is backed by strong research and development.
Combining the optimistic approach of management and the financial constituents, we recommend buying DABUR with a Target Price of Rs. 500.
3. RELAXO FOOTWEARS LTD (BUY):
Manufacturing and trading of footwears and footwear related products are the core activities of the company. In the recent quarterly results, the company presented strong numbers. The revenue of the company saw an upswing by 15%, at Rs. 648.30 crores in comparison to Rs. 561.98 crores in the corresponding period last fiscal.
Growth in revenue was backed by favourable product mix and surging volumes. The net profit witnessed an uptick by 8.27% to Rs 49.75 crore in the quarter April to June in comparison to Rs 45.95 crore during the corresponding quarter in the last fiscal year. The company’s EBITDA rose to 28% to Rs 106 crore in quarter April to June from 83 crore in the same period previous year.
The EBITDA margin grew to 16.4% in quarter April to June from 14.7% in the same period previous year. The growth in operating profits was not reflected in PBT due to increase in non-cash expenses led by a change in accounting standards. The company has aligned its focus on expanding its presence in untapped markets by means of improved supply chain. Relaxo is marking its strong presence in both domestic and international markets by assessing customer preferences and price positioning.
We recommend a Buy on Relaxo Footwears Ltd with a Target price of Rs.520
4. TITAN (BUY)
In Q1FY20, the company reported healthy numbers even in a tough environment, led by growth in revenue of 15.7% (YoY) to Rs 5,151.1 crores coupled with a rise of 10.8% YoY to Rs 363.7 crores in the consolidated net profits.
Backed by healthy growth in revenue, EBITDA rose by 18.8% YoY to Rs 573.4 crores. Titan has been engaged in manufacturing under various segments including jewelry, watches and eyewear which reported growth in revenue at 14.3%, 20.1% and 13.1% respectively. The other segments of the company which are accessories such as bags and sunglasses, fragrances and sarees reported an upswing of 37.9%. The jewelry segment reported a moderate growth subdued by rising gold prices and weak consumer sentiments which may be balanced by upcoming festive demands. The company is seeking for expansion of retail outlets for better customer reach. In this quarter, it added 45 stores for all businesses. With the enrichment of new collection in the jewelry portfolio, rising demand in festive season, sustainability in gaining market share, the company is expected to foster growth in the upcoming quarters.
We recommend buying Titan with a target price of 1138 with a potential upside.
5. INFOSYS (BUY):
Aligning with its engagement in consulting, technology, outsourcing and next-generation services, Infosys gave a steady start in the first quarter of the financial year 2019-20. It reported a strong topline growth. The currency revenue grew impressively in this quarter surging 12.4% (YoY) and digital revenue growth rose by 41.9%. The element that was factoring the growth was consistency in focus on clients and investments.
In the first quarter itself, the company added 112 new clients with the number of active clients reaching to 1,336. Adding on to it, the company continued to leverage their digital navigation framework to help their clients in building and nurturing their live enterprise. Infosys had reported a record deal win (TCV) of $2.7 bn in this quarter. There has been robust growth in the segments with all large regions and the verticals growing at double digits (YoY).
Considering an uptick in revenue forecast, continued focus on increasing operational efficiency, cost curtailing measures and optimum employee utilization, we recommend buying Infosys with a target price of Rs. 900 with a potential upside.
6. IDBI BANK (SELL):
The monetary intermediator of commercial and saving banks, postal savings bank and discount houses, IDBI BANK, reported a net loss of Rs 3,800.84 crore in the first quarter April to June catered by lower net interest income and higher provisioning while in the corresponding quarter last fiscal, the company had posted a net loss of Rs 2,410. The net interest income shrank to Rs 1,458 in Q1 FY20 as against Rs 1,639 in the same quarter previous year. Though there was some improvement in NPA ratio which declined to 29.12 per cent as against 30.78 per cent in the same quarter last year, the bank’s net interest margin declined by 4 basis point, standing at 2.13 per cent in comparison to 2.17 per cent last year. The operating profit of the bank dropped by 12 per cent to Rs 951 crore in comparison to Rs 1,081 crore in the same quarter last fiscal.
Considering the shrinking financials, we recommend selling IDBI BANK with a target price of 18.80, representing a potential downside around 30% from current market price.
7. HCL TECH (BUY)
The company is a provider of variant software development services, business process outsourcing services and information technology (IT) infrastructure services. It offers integrated portfolio of services which includes IT solutions, R&D services, engineering, remote infrastructure management and BPO. It has a vast global reach with presence in 44 countries. In Q1FY20, the company’s revenue showed an uptick with a growth of 18.4 percent YoY to Rs. 16,427cr. The growth in revenue was factored by 18.9 percent YoY growth in IT and business services, followed by a 16.3 percent YoY growth in engineering and R&D services. The company aims to focus on capturing large deals to gain market share from incumbents in consolidation deals. Healthy deal wins across the acquisition of IP products would help in driving growth for the company.
We recommend buying HCL TECHNOLOGIES Ltd. with a target price of INR 1187.00
8. KOTAK BANK (BUY):
Kotak Mahindra Bank has shifted its focus on digital assets in order to reap benefits. The launch of AI-driven chatbot ‘Keya’, which has shown active adoption and has crossed over 3.5 million queries from over 1 million unique users with an accuracy of 93%, has increased customer fulfilment in self-service mode by more than 6 months. This Chatbot is more customer centric. Kotak Mahindra Bank has become one of the first banks in India to pilot the WhatsApp enterprise solution to offer a range of banking services, with 2 million users registered since July 2018.
Kotak Mahindra Bank is one of the leading banking and financial services group in the country. The bank has improved the asset quality on both consolidated as well as on standalone basis. The net interest income has grown by 18.2% YoY which is supported by 21% YoY growth in loans and advances. Deposits have shown an advance by 17% YoY with 21% YoY growth in CASA deposits. The CASA mix has increased by 170 bps to reach 52.5% in the current quarter. The Gross/Net NPA of the bank showed an improvement to 2.14%/0.75% in Q4 FY19 as compared to 2.22%/0.98% in Q4 FY18.
We recommend buy on Kotak Bank with a Target Price of INR 1630 representing a potential upside.
However, it is always advisable to keep in mind your own risk appetite and investing capital before investing your money in stock markets. As always, with investment, your capital is at risk.