We brought you a list of Stocks that goes for the “Best Stocks for Diwali 2021” investment. These companies are market leaders in their own sector and are beaten down from their all-time high. With Nifty down 5% from its all-time high, these stocks would be the perfect pick for your Diwali investment.
Below is our list of “Best Stocks for Diwali 2021” :
- HDFC LTD:
KEY RATIONALE :
- Healthy Performance – HDFC Ltd posted a healthy operational performance with NII growth of 22% YoY to ₹4147crs, driven by 3.7% margin expansion, up 20 bps QOQ, 60 bps YoY. Other income came in at ₹995crs, down 45% YoY, owing to higher profit from sale of investment in Q1FY21. Excluding this, other income has increased 29% YoY. Operating expenses came in higher at ₹550crs, due to stock option related expense. The bank has made provisions worth ₹686crs during the qtr. including Covid-19 provisions, taking cumulative Covid related buffer to ₹1017crs.
- Recovery in Disbursements – The recovery in disbursements was much stronger than expected at the start of the second COVID wave. July’21 disbursements were the third highest ever and the highest ever in a non-quarter month-end. July disbursements stood at ₹12,518crs. The repayment rate stood at 8.0% v/s 10.3% in the previous quarter.
- AUM Status – During the quarter, the overall loan book increased to ₹5,00,490 Crores. The Assets Under Management (AUM) as at June 30, 2021 amounted to ₹5,74,136 Crores as compared to ₹5,31,186 Crores in the previous year. AUM growth was driven by 14.5% growth in individual portfolio led by strong demand for home amid lower interest rates and softer property prices. Among nonindividual book, corporate segment (comprising 6% of AUM) and Lease Rental Discounting (6% of AUM) remained muted. However, the company remained cautious on the construction finance segment (10% of AUM) and continued to gradually degrow the book.
HDFC is well-placed in the current environment to capture a profitable market share. The company has access to low cost of funds, a strong ALM position, comfortable leverage, and adequate provisioning on the balance sheet with a healthy Tier I ratio of 21.3%. Further, healthy provision buffer & improvement in the collection to aid asset quality. HDFC has provided a multiple resistance breakout above ₹ 2870 which confirms bullish sentiments on the daily charts. The stock has gained strength along with rising volumes which signal increased participation at the breakout zone. The stock is also trading well above its 21-day simple moving average. The stock has provided a Bullish Bollinger upper band break out on the daily time frame indicates the uptrend to continue. The resistance for the stock is placed at ₹ 2990 and 3170. The support levels are placed at ₹ 2850 and ₹ 2770.
Our Recommendation: Buy HDFC above ₹ 2900 for a Target of ₹ 3310. The Stop Loss is placed at ₹ 2760.
- Higher slippages from non-individual book may impact profitability.
- Persistent impact of pandemic may delay further growth in business.
2. HAVELLS INDIA
KEY RATIONALE :
- Q2FY22 Snapshot – Revenues grew by 31.4% YoY to ₹3221 crs with core segment growing by 32.6% while Lloyd grew by 21.7%. Gross margins down by 600bps YoY to 34.3% impacted by RM inflation. EBITDA grew by 5.5% YoY to ₹444crs while margins contracted by 340bps YoY to 13.8%. Gross Margin impact was partially offset by 100bps/180bps decrease in operating expense/employee cost.
- Growth across Segments – Revenue growth was broad based across product categories, Cables & wires, Switch gears, Lighting & Consumer durable & other products grew by 46%, 20%, 34%, 26% & 23%. Lloyd’s revenue grew by 22% YoY, but higher inventory in the channel continue to impact. The growth momentum will continue led by recovery in B2B business, pick-up in construction activities and buoyant consumer sentiments.
- Management Highlights – The management has highlighted the need to take further price increases to completely offset the commodity inflation. It aims to do so as the demand momentum picks up going into the festive season. Price hikes in ACs (the Lloyd business) may be seen only next summer, indicating weak margins for the following quarter as well.
Revenue growth continues to be strong on account of a revival in consumer sentiments and pick-up in the construction sector. However, input costs are likely to be elevated in the near term, a key concern. Havells India’s strong product portfolio, high brand recall, superior earnings, and strong balance sheet are positives. Havells has declined sharply from its recent high of ₹ 1504 and has taken support near its earlier resistance level of ₹ 1200. The stock has bounced back after testing its 100 days moving average level of ₹1212 and the stock is also able to sustain above its previous resistance level of ₹1260 shows the sign of reversal in trend. The stock has formed higher tops and higher bottoms on the weekly time frame indicate the long-term bullish trend remains intact. The support is placed at ₹1260 and ₹1210 and resistance is placed at ₹1350 and ₹1400.
Our Recommendation: Buy the stock above ₹1264 for a Target of ₹1480 and a stop loss of ₹1190.
Third and the Last Stock in our List for “Best Stocks for Diwali 2021”
- Strong Presence – The company has a dominant market share in health supplement, OTC & ethical products, hair oils & juices. Moreover, it is continuously gaining market share in the oral care category. The company has a total distribution reach of 6.9 million retail outlets with direct reach of 1.3 million outlets. It is expected to increase direct distribution to 1.5 million outlets in the next two years. Dabur also derives ~50% of its sales through rural regions with a presence in 60,000 villages, which would increase to 80,000 villages in next two years.
- Strong Results – Dabur reported a strong set of numbers with revenue growth of 31.9% YoY to ₹2611.5crs in Q1FY22 on the back of strong sales recovery from weak quarter. On a two-year CAGR basis, the growth is 7.2%. It is one of the few companies, which has consistently grown above pre-Covid levels. Domestic sales grew 33% while international business witnessed growth of 28.5%. India business volume growth was 34.4%.
- Key Triggers – Significant shift in consumption towards healthier, natural & Ayurveda based products would be driving growth for the company. Aggressively foraying in many big categories (edible oil, carbonated drink, household insecticides, fruit drinks). Increasing the distribution of many urban products in hinterlands with lower price points (fruit drinks, juices) & different variants (‘Honey Tasties’)
Dabur is one of the few FMCG companies, which is continuing the growth momentum across categories. The new products launched in the last year have been much more relevant in healthcare, immunity & Ayurveda products. Dabur has also been able to manage commodity costs better than peers, which reflects in the current quarter’s gross margins. The company aims to increase its advertisement spending to 9% of sales to support new launches and existing products.
Dabur has corrected more than 10 percent from its 52-week high and witnessed buying interest after testing its trend line support. Currently, the stock has formed a double bottom pattern and has started moving higher which signals the stock is bottoming out near 570 levels. The chart pattern has provided a good buying opportunity for the investors. Dabur has also formed a bullish hammer pattern on the weekly chart which indicates a potential price reversal to the upside. The support level for the stock is at ₹ 570 and ₹ 545. The resistance level is placed at ₹ 630 and ₹ 660.
Our Recommendation: Buy Dabur above ₹ 590 for a Target of ₹ 700. The Stop Loss is placed at ₹ 544.
- Failure in multiple new initiatives could shake distributor’s confidence. 2.
- Chances of lockdown in rural areas in the near future on account of any further covid wave.
- Slowdown in economic activity can impact rural consumption
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