Samvat 2077: Investors must look for safety first, tone down expectations

Given the sharp rebound since April, investors must tone down near-term expectations
Small-cap indices have been the clear winners in Samvat 2076, so far, with double-digit returns, even as the benchmark indices struggled to deliver with returns under 3 per cent. This information, however, hides the fact that only two sectors — information technology and health care — were the clear outperformers with returns exceeding 40 per cent each. Hit by the pandemic, most other sectors ended up destroying value, delivering negative returns. Given the sharp volatility, pressure on cash flows, and worries of a second wave of infections, it is preferable to stick to leaders or top-tier players across sectors as they consolidate their position and gain market share. Further, with valuations of mid-cap indices now moving into the premium territory compared to large-caps, risk-reward, too, is in favour of the latter. The list below contains companies which have good revenue visibility, are likely to be the key gainers in both technology and old economy segments once investment cycle picks up, and offer double-digit stock returns from an FY22 viewpoint. Given the sharp rebound since April, investors must tone down near-term expectations.

Alembic Pharma

Alembic has posted a strong rebound in earnings, wherein US sales grew 33 per cent in the first half FY21, helped by new launches and supplies of hypertension drug. Investments over the past three years across R&D and manufacturing are likely to continue driving growth. Pro­spects in India, too, remain str­ong with the chronics segment comprising 61 per cent of revenues. Analysts expect 16 per cent annual growth in reven­ue, helped by 17.5 per cent gro­wth in the US business and a 9 per cent increase in the dom­estic business over FY20-22.


Strong September quarter results and outlook led to an upward revision of FY21 revenue growth and margin guidance. With new deal wins at record highs and the pipeline strong, brokerages expect revenue outperformance to continue in coming quarters. While digital transformation projects will help Infosys outperform peers on revenues, cost optimisation measures should drive the margin furt­her. The best-in-class execution and strong earnings growth should help the stock bridge the 10-15 per cent valuation gap with market leader TCS.

Larsen & Toubro

The sharp improvement in engineering & construction revenues sequentially in the September quarter was led by improving manpower availability and easing of supply chain issues. The performance is expected to improve sharply during H2FY21. Strong project pipeline of Rs 6.1 trillion spread domestically (Rs 4.8 trillion) and internationally (Rs 1.3 trillion) should start materialising in the coming quarters. While the domestic market contributes to the majority of order inflow and backlog, L&T is diversifying in regions beyond West Asia. Improved collections from the government resulted in improving operational cash flows during the September quarter.

Tech Mahindra

The sharp uptick in the margin performance in the September quarter to multi-quarter highs was led by lower operating expenses and this trend should sustain. Sequential recovery in new contracts and a stronger deal pipeline are positive amid strong execution. Tech Mahindra is the biggest beneficiary of an uptick in 5G spends as telecom companies start to roll out their networks globally. Robust medium-term growth prospects, coupled with the attractive valuation of 15x its FY22 earnings estimates, should support the stock.

Hero MotoCorp

The two-wheeler leader gained a 300-basis point market share year-to-date on the back of high rural demand and a strong distribution network. Its premium portfolio has got a boost after the recent agreement to manufacture and sell Harley Davidson motorcycles. Given its market dominance in the economy and executive segments, downtrading, and rural bias, market share gains in the festival season are expected to continue. Preference for personal transport, improved finance penetration, and uptake in the urban segment should aid its position.

Bharti Airtel

Tariff hikes last year and a better customer mix helped improve its average revenue per user (ARPU) for four consecutive quarters. Further gains on the ARPU front are expected, both on account of strong subscriber additions and potential price hike. The telecom operator is looking at new revenue streams in the enterprise segment in areas, such as cloud communications. Improving margins, lower capex intensity, adequate cash on the books and reasonable valuations are positive from the returns perspective.


The transformation from a corporate-focused to a retail bank in five years has led to a significant moderation in gross slippages, and improved deposits mix and profitability. Its focus on portfolio quality and the strengthening of underwriting credit processes can restore the prudent growth path and result in better long-term value creation. The high adequacy ratio of 19.3 per cent acts as a cushion against further asset quality shocks.  It is also better placed than peers to deal with anticipated stress due to the pandemic, given its Covid provision buffer at 1.3 per cent of loans.


The foods major is least impacted by Covid-19, given 90 per cent of its products fall under the essential category. The rising demand for in-home consumption and ready-to-cook products should help the company in a post-Covid environment. It's the leader in over 80 per cent of the product portfolio, and expected to see further gains in market share given brand stickiness and the distribution network. Large capex, new product launches, and the ability to pass on higher input costs should aid in revenue growth and margins.

SBI Life

The company has emerged as the largest private life insurer with about 20 per cent market share. Continued focus on business growth and improvement in product mix remain its core strength. The compound annual growth rate of 27% in new business premium in the past four years is the best among private players. Strong distribution reach (including SBI's branch network and tie-ups with other banks), diversified product profile, and improving digital footprint are propelling the business. Competitive product pricing and push from the VNB margin should drive 14 per cent annual growth in embedded value in FY21-22.

UltraTech Cement

Stronger-than-expected demand rebound, improving volumes, and pricing remain favourable for India’s largest cement maker.  UltraTech, with expanded capacities in place and strong pan-Indian presence, is also the preferred supplier for key infrastructure projects. With a strong retail presence, it remains well placed to tap both retail and institutional demand. The 30 per cent improvement in per tonne operating profit in Q2, ahead of peers, instils further confidence. Analysts, too, have further upgraded their Ebitda estimates by up to 11 per cent for FY21 and FY22.


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