For 2015, we expect that the markets should definitely remain
buoyant on the back of a strong potential improvement in fundamentals - in
particular, recovering asset utilisations and strengthening EBIT margins - with
a secondary boost from a possible re-rating in valuations.
We expect earnings growth to the tune of 25-30 per cent over the next 5 years as the Indian growth story should benefit from a release of pent-up demand. Further, with the Indian rupee expected to continue to depreciate (along with rate cuts looming ahead) - contracts expiring 1 year hence reveal 6 per cent depreciation from current spot - we expect significant outflows from debt investments (as yields should correspondingly lower) and sustained equity inflows driven by the attractive fundamentals story.
Release of pent up demand should primarily aid the metals
& mining sector and the auto sector, which also possess excellent sector
fundamentals and good valuations. IT services - another fundamentally strong
and relatively undervalued sector - should be another strong bet, expected to
benefit from the weakening Indian rupee and a strong potential recovery in the
US economy (the Fed hinted at baby increments in rates by mid-2015).
While as a house, we do not focus on individual stock specific picks, but rather on identifying low risk pockets of high mispricing, based on our ideology of value investing we present below 10 stocks over the large and mid-cap space in no particular order.
These stocks have solid fundamentals and are fairly undervalued with respect to their intrinsic values:
1) NMDC
2) Coal India
3) Wipro
4) Tata Motors
5) HCL Technologies
6) MOIL
7) Hindustan Zinc
8) Engineers India
9) MphasiS
10) GMDC
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