Top Large, Midcap Stocks Picks For January: Motilal Oswal
Over the last 12 months, largecaps/midcaps have risen 4% each, while smallcaps have declined 14%.
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Motilal Oswal Report
Nifty celebrates a new milestone in CY22 – by touching a blissful high of 18,888, before closing at 18,105. Despite a multitude of disruptions along the way, Nifty was up 4% in CY22 - seventh consecutive year of positive returns.
Over the last 12 months, largecaps/midcaps have risen 4% each, while smallcaps have declined 14%. The market has bounced back smartly in the last two months, wiping out the entire decline year-to-date.
Domestic institutional investor flows into equities in CY22 were the highest ever at Rs 2.8 lakh crore versus inflows of Rs 0.9 lakh crore in CY21. Conversely, foreign institutional invetors witnessed equity outflows of Rs 1.5 lakh crore (including primary market).
Markets in CY22 have been highly volatile and jittery fueled by a multitude of global and domestic macro headwinds. However, despite these challenges, the Indian markets have shown remarkable resilience and outperformed the global markets significantly.
As we step into CY23, the global factors, like recessionary fears, geo-political risks and rising Covid cases in China could keep the equity markets volatile. However, deceleration in the pace of inflation and any resolution in the Russia-Ukraine conflict can provide a relief, thus allaying the pressure on central banks to raise rates further.
Our top investment ideas for January 2023:
Angel One Ltd. (Upside 67.2%)
Angel One is a perfect play on the financialisation of savings and digitisation. It demonstrated a strong operating performance in Q2 FY23, even amid challenging market conditions.
Its market share in average daily turnover rose to 21.7% in Q2 FY23 from 20.8% in Q1 FY23. This was driven by an increase in its future and option market share to 21.7% from 20.8% in Q1 FY23. Its F&O market share remains the highest since Q1 FY22. Its market share in cash ADTO remained stable sequentially at 13.8%.
It continues to invest in building its digital capabilities to capture the industry growth.
Business could be impacted by high market volatility.
Despite the current industry headwinds, management expects the long-term growth story to remain intact. As and when the environment is relatively conducive, investments towards client acquisitions would be scaled up.
Coal India Ltd. (Upside 49.1%)
E-auction premium soared 40% QoQ to an all-time high of 329% in Q2 FY23. We believe that the Q3 performance of Coal India will be better QoQ with higher volume on e-auction with almost similar levels on premium.
With the onset of winters, we believe the demand for coal for power should slow down somewhat giving the company some headroom for higher non-power and e-auction dispatches. This in turn should help deliver another record set of profits for Q3 FY23.
Sharp pick up in renewable energy demand.
We believe the port-based power plants in India will continue to operate at lower plant load factor 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.
Vinati Organics Ltd. (Upside 54.5%)
Vinati Organics is the largest producer of ATBS in the world, with a global market share of more than 65% and contributing 53% to overall revenue in FY22. The management is confident that a niche product portfolio, expansion in its existing capacities, and foray into new products will enable it to keep the revenue momentum strong.
While Ibuprofen demand remains strong, butyl phenols segments has also come back well after a lackluster FY22 and the management expects a strong H2 for both Iso butyl benzene and butyl phenol .
Veeral Organics Ltd.'s additives has commenced production of antioxidants and post amalgamation, Vinati would become the largest and the only doubly integrated manufacturer of AOs in India. Further, Veeral Organics, its wholly owned subsidiary is set to commence production of MEHQ, Guaiacol, Iso Amylene in H1 FY24E, which should propel next leg growth.
Global headwinds may impact export demand.
The management is focusing on its already announced capacity expansion to 60 thousand tonnes per annum from 40 ktpa. A gradual ramp-up in expanded capacity over the next two years will drive growth for Vinati. We expect revenue/profit after tax compound annual growth rate of ~29%/36% over FY22-24.
Jubilant FoodWorks Ltd. (Upside 47.1%)
Growth outlook and margin for the quick service restaurant sector remain attractive, unlike the rest of the consumption space, where uncertainty prevails.
Demand environment continues to be positive. Regionalisation of product mix, specifically for the eastern region and Gujarat, during the quarter is a welcome move.
Jubilant FoodWorks added over seven million customers to its loyalty program within a short span of time (launched in May-22). This along with its highest ever own channel contribution to total delivery sales augurs well in strengthening its moats.
While material cost pressures remain, there appear to be no material concerns on lease rentals and employee costs.
Jubilant FoodWorks remains our top pick in this space, given that 1. it has the best balance Sheet to fund expansion; 2. its proven track record of managing both store expansion and healthy same-store sales growth; and 3. its technological edge over peers. The experience of the new CEO from Amazon India will further augment Jubilant FoodWorks' clear leadership on the technology front.
Click on the attachment for the full list of Motilal Oswal's stock picks for January 2023:
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