Morgan Stanley’s 12 Stock Picks For 2021

Here are Morgan Stanley’s top 12 stock picks for 2021...

Bajaj Auto

• Rating: Overweight
• Price target: Rs 3,900 apiece
  
  Rationale:
• Well placed to benefit from urban demand rebound with its premium product mix and three-wheelers.
• High exposure towards fast-growing export markets implies a higher terminal growth rate.
• CNG network expansion to offset EV disruption risks.
• Expects Bajaj to become more aggressive on electric two-wheelers from 2022.
• High margin business recovery should drive RoE improvement.
• Valuations at a steep discount to the Nifty.

Bharat Electronics

• Rating: Overweight
• Price Target: Rs 143

Rationale:

• Has several competitive advantages.
• Diversified and large order book lends strong earnings visibility.
• Plans to reduce imports and proposed regulatory changes also beneficial.
• Best way to play India’s defence indigenisation story.

Bharti Airtel

• Rating: Overweight
• Price Target: Rs 680 apiece

Rationale:

• Strong network, relatively stronger balance sheet and growing focus on digital products and platforms.
• Capturing a strong share of 4G additions.
• Free cash flow profile improving.
• Management making serious moves on the digital side.
• FY21 capex to be lower than that in FY20.

Britannia

• Rating: Overweight
• Price Target: Rs 4,287 apiece

Rationale:

• Strong tailwinds to food consumption habits.
• Will placed to capitalise on opportunities.
• Building larger distribution in rural India, increasing direct distribution, premiumising the portfolio will support growth.
• Expects to maintain leadership and grow biscuit portfolio.
• Becoming a total foods company will drive growth in the medium term.
• Valuations look favourable.

DLF

• Rating: Overweight
• Price Target: Rs 299 apiece

Rationale:

• Improving the physical market and demand consolidation should benefit DLF.
• Quarterly pre-sales may double to Rs 1,000 crore in FY22.
• Large rental portfolio should grow 40-50% over the next two-three years.
• Demand drivers seem positive supported by steady commercial space and better affordability.
• Valuations look reasonable.

ICICI Prudential

• Rating: Overweight
• Price target: Rs 620 apiece

Rationale:

• Huge structural opportunity with demand being of essential nature.
• Leadership position in the individual protection business.
• Diversified distribution relative to peers including a strong bank channel.
• Expects strong pick-up in top-line and bottom-line growth in Q4 FY21 and FY22.
• Expects annual premium equivalent and of new business growth to bounce back to more than 20%, which should see strong investor interest.
• Attractive valuations and underperformance versus markets drive overweight rating.

IndusInd Bank

• Rating: Overweight
• Price target: Rs 1,075

Rationale:

• Well-positioned over medium-term given strong capital base, strong growth potential, high profitability and increasing share of retail.
• The balance sheet has improved meaningfully over the last few quarters.
• Underlying profitability is strong.
• Valuations in the current backdrop look attractive.
• “In our bull case, we expect returns to be about 100% over the next 12-15 months.”

Just Dial

• Rating: Overweight
• Price target: Rs 760 apiece

Rationale:

• Core business recovering; emerging business-to-business opportunity.
• Local search business could continue to recover over the next few quarters.
• Focus on B2B can drive up average realisations per campaign.
• Expects B2B revenue growth rates to pick up over the next few years.

Larsen & Toubro

• Rating: Overweight
• Price Target: Rs 1,512

Rationale:

• Increased visibility of capex bouncing back in FY22.
• Infrastructure demand remains strong.
• Some green shoots on private capex and defence.
• Stronger execution and new orders, the commencement of state orders, lower losses in Hyderabad Metro, improvement in ESG ratings.

Mahindra & Mahindra Financial Services

• Rating: Overweight
• Price Target: Rs 215

Rationale:

• One of the better-positioned NBFCs as it screens well on parentage, liquidity and capital.
• A beneficiary of a resilient rural economy.
• Expect normalisation of credit costs and decline in book funding costs to drive strong earnings and RoE recovery in FY22.
• “We expect RoE to be about 13% in FY22 and 17% in FY23, much higher than the cost of equity of 11.5%.”
• Valuations in current context look attractive.

PNB Housing Finance

• Rating: Overweight
• Price Target: Rs 495

Rationale:

• Can give strong returns over the next 12 months.
• Parentage ensures access to liquidity and continued balance sheet strengthening.
• Expects normalisations in credit costs from FY22.
• Recent CEO change and ongoing optimism on a multi-year real estate cycle could pose upside risks.
• Valuations look attractive in the context of about 11% RoE in FY22 and 20%+ tier-I ratio following equity issuance.

Tata Steel

• Rating: Overweight
• Price Target: Rs 840

Rationale:

• Favourable macros, tight demand-supply dynamics and focus on deleveraging.
• Higher international steel prices to support strong spreads in India.
• Prices of iron ore are likely to stay high in the near term.
• Net debt levels will come off over the next five-six quarters in absolute terms.
• Expects de-leveraging to be sharper in the current cycle.
• Current spreads not yet in the price.