Year 2022 has been marked by volatility on account of a wide variety of global new flows ranging from geopolitical issues, higher inflation (mainly food and energy) and hawkish action of central banks. This has led to a decline in global equities, mainly in the US and Europe. In this article we will provide top Muhurat Picks for Year 2022

Amid all this negativity, India has relatively outperformed global peers in terms of all economic parameters (capex spend, discretionary consumption, robust pick-up in banking activity, etc).

The same is reflected across Indian equity markets. Going ahead, we believe Corporate India will likely deliver earnings growth in excess of 15% over the next two years given the current economic milieu and provide a plethora of investing opportunities in Indian markets.

However, sticky global inflation will keep central banks hawkish and India will be no exception. Similar implications for global liquidity flows may create medium term volatility in Indian markets.

However, if such a scenario materialises, then the same will be a strong opportunity to take exposure to Indian equities.

Our one year forward, Nifty target is at 19425 (21x FY24 EPS) with sectoral bias towards banks, capital goods/infrastructure, autos, avoiding sectors having more global exposure like IT, oil & gas and metals.

Given the scenario, we see reasonable opportunities across the market spectrum with key filter being quality.

We continue to advise investors to utilise equities as a key asset class for long term wealth generation by investing in quality companies with strong earnings growth and visibility, stable cash flows, RoE and RoCE.

Muhurat Picks 2022.

Axis Bank (AXIBAN) Buying Range (| 780-815)

  • Axis Bank is one of the largest private sector banks in India with a balance sheet size of | 11.5 lakh crore as on June 2022. In terms of advances, Axis Bank has reported ~13% CAGR in the last five years and is expected to grow at a CAGR of 16.3% in FY22-24E.
  • The bank is focusing more on the retail segment, which has a share of ~60%, primarily mortgage loans. More than 80% of unsecured loans are given to the salaried segment. We believe pedalling business growth with higher share of unsecured loans in incremental business will continue to aid margin uptick
  • The bank has cumulative provisions of 134% of GNPA, which provides comfort on asset quality and earnings volatility. In the last few quarters, asset quality has continuously been improving led by moderation in slippages as GNPA and NNPA were at 2.7% and 0.64%, respectively. Its BB and below rated book were also lowest at 0.64% as of June 2022. We believe incremental provisions will be on the lower side resulting in lower credit cost, thereby boosting earnings
  • With strong capitalisation levels at ~17.8% (tier I at 15.7%), Axis Bank is poised to pedal higher business growth, going ahead
  • Robust business growth, improving operational efficiency and synergy benefits from the Citi acquisition would reflect positively on the earnings trajectory and price performance. We believe Axis Bank will deliver an RoA, RoE of ~1.5%, ~15%, respectively, over FY22-24E.

City Union Bank (CITUNI) Buying Range (| 170-185)

  • City Union Bank is an old private sector bank with primary focus on MSME and agri loans that form ~61% of overall advances. Total ~99% of its advances are secure in nature
  • The bank reported ~10% CAGR in advances in the last five years and is expected to grow at a CAGR of 13% in FY22-24E. With a revival in economy, the management has also revised its credit growth guidance upwards to 15-18%, which is encouraging. Advances to top 20 borrowers constitutes ~5.3% of total advances (lower in the past few years), indicating the bank’s focus on a granular loan book
  • After impact of Covid lockdowns, asset quality hiccups seem to be fading away as incremental stress formation remains under control. Led by lower slippages, GNPA and NNPA were at 4.6% and 2.8%, respectively, as of June 2022. The management has guided that recoveries and upgrades will be higher compared to fresh slippages in FY23E. However, higher slippages from the restructured book can be a spoilsport
  • The bank is aiming to strengthen its digital platform and branch expansion, which will keep opex elevated in the near term. Revival in MSME is expected to benefit credit offtake as well as recoveries in stressed asset pool. Steady margins at ~4% and healthy business growth will aid operational performance and return ratios. We believe City Union Bank will deliver RoA, RoE of ~1.5%, ~13%, respectively, in FY22-24E
  • With healthy CRAR at ~20.5% (tier I at 19.4%), the bank is expected to continue higher business growth in FY22-24E without any significant dilution.

Apollo Tyres (APOTYR) Buying Range (| 260-275)

Muhurat Picks 2022

  • Apollo Tyres (ATL) is a leading tyre manufacturer, with operations in India (~67% of sales) & Europe (~31% of sales). In India, ATL has a substantial presence in TBR (31% market share) & PCR space (21% market share). On a consolidated basis, segment wise mix is at truck, bus ~43%, PV ~35%, OHT ~10%, others ~12%. Channel mix for FY22 is as 81% for the replacement market, 19% through OEMs
  • Domestically, ATL is expected to benefit from cyclical upswing in the CV space coupled with double digit growth in PV domain driven by greater consumer preference for SUVs. It has already restructured its European operations, which now on a consistent basis are reporting higher double digit margins with share of value added products on a continuous rise
  • Natural rubber and crude derivatives form a majority (~65-70%) of raw material costs for tyre manufacturing. Both these commodities have witnessed a healthy correction with natural rubber down ~15% from April 2022 levels and are now hovering around the | 150-155/kg levels from the highs of | 170+/kg. Even crude is down ~20%+ from June 2022 levels and is currently hovering at ~US$90-95/barrel. This bodes well for all tyre manufacturers with ATL a key beneficiary
  • With a target to achieve revenues of $5 billion by FY26, EBITDA margin of at least 15%, RoCE of 12-15% and net debt to EBITDA of less than 2x, ATL is currently focusing upon capital efficiency, sweating of assets, controlled capex spends, healthy FCF generation & deleveraging of b/s. With a reduction in debt, RoCE at ATL is seen at 13% by FY24E. It is currently trading at inexpensive valuation of ~5x EV/EBITDA on FY24E.