New Year Top Picks - Nine Stocks For 2023 Recommended By ICICI Direct

ICICI Direct Report

India fared well both relatively and in absolute terms with respect to economic and stock market performance. Going ahead, we believe H1 CY23 may turn out to be volatile as investors around the globe would seek answers to key puzzles such as:

1. How fast interest rate hikes come to a halt globally,

2. damage to economic growth, more so in developed economies,

3. lag effect of a rise in interest rates on demand cycle and corporate earnings per share in India, etc.

However, we believe such volatility will throw up attractive opportunities in domestic oriented sectors like banks, capital goods, infrastructure, logistics, which will continue to be the beneficiaries of massive capex spend by the government/private sector and recovery in margins/profitability.

Apart from these, domestic sectors like retail, real estate, auto ancillaries (domestic focused) will also provide good opportunities for the medium to long term.

Here are our top picks for 2023:

Sterlite Technologies Ltd. - The company is uniquely positioned to benefit from 5G/fibre-to-the-home deployment cycle both domestically and globally. We believe that with renewed focus on ramping down/exiting loss making segment and focusing on improving services segment profitability, Sterlite will likely see improvement earnings momentum ahead.

Key risks: Volatility in margin, continued leverage.

Maruti Suzuki India Ltd. - The company is well placed to play upon the underpenetrated passenger vehicle segment domestically. We build 16.6% volume compound annual growth rate, 24.7% revenue CAGR and 67.6% profit after tax CAGR for Maruti Suzuki over FY22-24E. On the balance sheet front, the company is net debt free with surplus cash amounting to ~Rs 42,000 crore (FY22). It is capital efficient with return on invested capital more than 25%.

Key risks: Covid led slowdown in demand, adverse currency move i.e. unexpected appreciation of yen versus rupee.

Nesco Ltd. - We like Nesco, given the prudent management pedigree, steady and planned expansion across verticals funded largely through internal accruals and niche profitable business model including foods/own events etc. Post a washout 2.5 years for the exhibition business, we expect H2 FY23 to witness full recovery to pre-Covid levels in the exhibition business. The IT park business is also expected to be boosted as occupancies have improved and further improvement over next couple of quarters.

Key risks: Any further Covid wave; any exit and failure to release in commercial business.

Reliance Industries Ltd. - Reliance Retail has been one of the fastest, largest growing retailers in recent times . In FY18 -22 , it recorded a staggering 30 % revenue CAGR with sales worth nearly Rs 2 lakh crore in FY22. The company bolstered its offering and continued to fill white spaces through acquisitions and spent nearly Rs 10000 crore in FY22. Its recent acquisition of Metro Wholesale business for a consideration of Rs 2850 crore would further strengthen its backend supply chain with accelerated growth in Jio Mart Kirana orders and on-boarding of new hotel-restaurant-cafe clients .

On the oil-to-chemical front, Singapore gross refining margins, which had declined during the start of Q3 have started improving amid rise in product cracks and are at ~$ 9/barrel of oil. This would likely improve RIL's GRMs and its refining segment earnings. The company, in its annual general meeting announced capex plans worth Rs 75000 crore over five years across its petrochemical chain.

Key risks: Lower discretionary spends owing to higher inflation can subdue sales, lower-than-expected refining margins.

Click on the attachment to read the full list of ICICI Direct's top picks for 2023:

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.