RIL, SBI and ICICI Bank among 12 investment ideas for January by Motilal Oswal

Given such global uncertainty, Indian investors will look for domestic cues such corporate earnings, Union Budget, domestic economic growth.

“We expect two themes to play out in CY23 viz. credit growth and capex on the back of strong domestic macros and robust demand. We prefer sectors like BFSI, capital goods, infrastructure, cement, housing, defence, railways,” said Motilal Oswal in a report.

It has listed 12 stocks from the largecap space as top investment ideas for January 2023.

Reliance

CMP: ₹2,514 | Target: ₹2,875 | Expected Return: 14.4% | Target: ₹2,875 | Expected Return: 14.4%

Retail, Telecom, and new energy can be the next growth engine over the next two-to-three years, given the large technological advancements and ambitious growth targets. We expect consolidated revenue/EBITDA to clock 14%/16% CAGR over FY22-24.

There is strong traction in the retail and the telecom biz & large part of windfall tax related derating is behind so we expect stock to start performing.

Concern: The Oil and Gas business is witnessing challenging macro environment and volatile energy markets.

Read market-related stories here

Infosys

CMP: 1,475 | Target: 1,630 | Expected Return: 10.5% | Target: 1,630 | Expected Return: 10.5%

Infosys increased its revenue growth guidance for FY23 to 15-16% YoY in CC terms (from 14-16% earlier). The management narrowed its margin guidance to 21-22% from 21-23% earlier. We factor in 9.6% revenue CAGR over FY22-24, despite cross-currency headwinds, and margin of 21.1%/21.3% in FY23/FY24, leading to 11% PAT CAGR over FY22-24.

Concern: Weakness in parts of Retail, Hi-Tech, Financials (Mortgages), and Telecom as it has started seeing some deal-related slowdowns in these segments.

ICICI Bank

CMP: ₹879 | Target: ₹1,150 | Expected Returns: 30.8% | Target: ₹1,150 | Expected Returns: 30.8%

ICICI Bank appears to be several notches above its peers, when it comes to business transformation, led by tech initiatives and these digital capabilities will enable the bank to deliver superior growth over years to come. We expect ICICIBC to register a loan CAGR of 20% over FY22-24E and estimate FY24E RoA/RoE of 2.1%/17.2%.

Concern: Investment in new initiatives could raise the cost to income ratio

SBI

CMP: 605 | Target: 625 | Expected Returns: 3.3% | Target: 625 | Expected Returns: 3.3%

Among PSU Banks, SBI remains the best play on a gradual recovery in the Indian economy, with a healthy PCR (~78%), Tier I of ~11.4%, strong liability franchise, and improved core operating profitability. We estimate earnings to post 32% CAGR over FY22-24 and project SBI to deliver an FY24 RoA/RoE of 1.0%/ 17.3%, respectively.

Asset quality performance has been strong with continuous improvements in slippages and headline asset quality ratios with restructured book being under control at 0.9%.

Concern: Business trends remain modest, impacted by continued deleveraging by corporates.

Bharti Airtel

CMP: 807 | Target: 1,010 | Expected Returns: 25.2% | Target: 1,010 | Expected Returns: 25.2%

BHARTI should continue to clock a strong EBITDA CAGR of 19% over FY22-24E, led by: a) an improvement in the 4G mix, b) market share gains, and c) steady inroads into the nonWireless business.

We expect a rise in ARPU to act as a catalyst for the stock and see a potential rerating upside in both India and Africa business on the back of steady earnings growth.

Concern: Higher investments in 5G can dilute FCF going forward and may lead to elevated debt levels.

ITC

CMP: 333 | Target: 400 | Expected Returns: 20.2% | Target: 400 | Expected Returns: 20.2%

Resilient nature of its core business, amid an uncertain environment, and 4-5% dividend yield makes it a good defensive bet in the ongoing volatile interest rate environment.

Healthy sales momentum in the FMCG business is driven by improved reach, enhanced penetration and better last mile execution. Market/Outlet coverage stood at ~2.0x/1.3x of pre-pandemic levels.

Concern: Volatile macro environment

Titan

CMP: ₹2,566 | Target: 2,910 | Expected Returns: 13.4% | Target: 2,910 | Expected Returns: 13.4%

Titan remains an attractive investment case in the large-cap Consumption space in India, with strong earnings growth visibility and compounding ~20% for an elongated period of time. We expect this trend to continue, with a 31% earnings CAGR over FY22-24.

Concern: Guidance on margin for subsequent quarters is relatively muted, given its outperformance in 2QFY23

Ultratech

CMP: ₹7,011 | Target: ₹7,510 | Return: 7.1% | Target: ₹7,510 | Return: 7.1%

Ultratech’s capacity expansion plans, along with scope for an improvement in utilization of existing capacities, offer strong growth visibility. We expect a growth of ~9% in sales volumes in FY23-24. We expect it to trade at higher-than-historical multiples, given its leadership position and strong growth opportunities.

Cement demand is expected to pick up post the festive season and volume growth should be in double-digits in FY23/24. Prices should improve going forward to mitigate the impact of sustained cost pressures.

Concern: Coal prices are likely to remain at an elevated level

Coal India

CMP: ₹218 | Target: ₹325 | Expected returns: 49.1% | Target: ₹325 | Expected returns: 49.1%

We believe the port-based power plants in India will continue to operate at lower PLF as Europe continues to buy more south African coal, leading to shortage of high-grade thermal coal in India (needed for the non-power sector), which in turn will lead to sustained e-auction premiums. Coal continues to be our top pick in the metals sector driven by strength in the E-auction premiums and high dividend yield.

Concern: Sharp pick-up in renewable energy demand

Indusind Bank

CMP: ₹1,216 | Target: ₹1,450 | Expected returns: 19.2% | Target: ₹1,450 | Expected returns: 19.2%

The management is guiding for continued momentum in loan growth and is looking to end FY23 with a growth of 20%. We estimate PAT to report 40% CAGR over FY22-24, leading to 16% RoE in FY24E.

Healthy provisioning in the MFI portfolio and contingent provisioning buffer of 1.0% of loans will enable a steep decline in credit cost, thus driving a sharp recovery in earnings.

Concern: Asset quality remains monitorable

Apollo Hospital

CMP: ₹4,428 | Target: ₹5,600 | Expected returns: 26.5% | Target: ₹5,600 | Expected returns: 26.5%

We expect 15% revenue CAGR over FY22-24 driven by growth in Pharmacy, Healthcare, AHLL businesses. We expect free cash flow to improve going forward despite capex for bed additions and increased spend on Apollo 24/7, led by better show by healthcare services/AHLL segment.

Concern: Any delay in capex execution could impact future growth

Macrotech Developers

CMP: ₹1,077 | Target: ₹1,530 | Expected Returns: 42.1% | Target: ₹1,530 | Expected Returns: 42.1%

We expect the topline to clock 7% CAGR over FY22-25 aided by 8-9msf of project completions each year and ₹12-16 billion of monetization in commercial and industrial segments.

We expect the company’s RoE to improve to 16% aided by expanding PAT margin and marginal improvement in asset turnover from FY23E base.

Concern: Cost Inflation to impact on the sales price

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.