Why these are the nine stocks to buy right now

The domestic equity benchmarks are charting new territories, supported by benign internal and global factors. The monthly return of Nifty 50 in November was the highest since October 2022. The market capitalisation of NSE-listed companies also surpassed $4trn on December 1. The recent rally has also helped the Indian markets to outperform equity markets of several countries on a year-to-date (YTD) basis.The benchmark Nifty 50 and MSCI India indices delivered 16% YTD returns, against the MSCI indices of China, Brazil, the UK and Europe, with returns ranging from -15% to 12.3%. The MSCI Emerging Markets index returned 1.8%.However, the Indian markets failed to outperform the US markets, with the MSCI USA index delivering 21.1% return during the same period (Reuters-Refinitiv data, based on December 11 values).Resilient domestic economyThe investors’ sentiments are buoyed by the strength of the Indian economy, which is visible from the above-expectation 7.6% gross domestic product (GDP) growth in the second quarter of 2023.Healthy leading indicators (power demand, housing demand, credit growth), moderating consumer inflation, optimism about government spending, stable interest rates and a decline in political uncertainty regarding the 2024 general election after the recent assembly election results are some of the factors imparting strength to the domestic economy.However, the expected volatility in inflation and impact on exports due to likely underperformance in advanced economies will lead to a minor slowdown in 2024.A recent CLSA report expects India to become the world’s third largest economy, overtaking Japan, by 2027, led by factors such as demographic dividend, financial deepening and forex stockpile. medium106119231Though the report expects a temporary slowdown till September next year, the expected interest rate cuts by the Reserve Bank of India (RBI) and recovery in rural demand will lead to a cyclical recovery in 2025.Moreover, corporate India reported a healthy performance in the September quarter, led by margin tailwinds. The aggregate EBITDA (earnings before interest, taxes, depreciation and amortisation) and adjusted net profit of the Nifty 500 index grew by 29% and 40%, respectively, on a year-on-year (y-o-y) basis, according to the data compiled from a Motilal Oswal report. The aggregate EBITDA margins improved to an eight-quarter high of 16.8%, and jumped by 480 basis points on a y-o-y basis.Going forward, the analysts expect reasonable earnings growth, supported by continuing capital expenditure (capex) programmes of corporate India.“We expect reasonable earnings growth of 13-15% due to a reasonable amount of capex by companies after a long time, and we see this capex turning into revenue in the coming quarters by most of these companies,” says Mukesh Kochar, national head of wealth at AUM Capital.Positive global factorsFavourable global cues in the form of strong GDP growth in the US, fall in crude oil prices and softening of the US bond yields are also supporting the recent rally.While the 10-year US bond yields have softened from their October high of 4.98% to 4.2%, robust consumer spending has helped the US economy to grow at 5.2% annual rate from July to September. On the other hand, Brent crude declined by 22% from its September high of $96.6 per barrel.The decline in the US bond yields and the US dollar index has renewed the interest of foreign portfolio investors (FPIs) in the Indian equity markets. After selling more than ₹39,000 crore of equities in September and October, FPIs bought more than ₹9,000 crore of equities in November. In December so far, foreign investors have purchased equities worth ₹31,371 crore (data up to December 12). medium106119278 medium106119303“The conducive business environment, policy reforms and the potential for high returns make India an attractive choice for global investors seeking opportunities in the emerging markets,” says Akhil Bhardwaj, senior partner at Alpha Capital.The outlook for 2024 is marked with optimism due to the expectations of an interest rate cut. Sujan Hajra, chief economist and executive director, Anand Rathi Shares and Stock Brokers, says that the consensus assumes that inflation will continue to decrease in the US and that the policy rate cut cycle will begin sooner than previously predicted. Moreover, Europe’s GDP growth is expected to rebound and the rapid cooling of inflation in recent months will pave the way for monetary easing in the near future.Stretched valuationsThe robust performance of corporate India in the September quarter has made valuations reasonable. The 12-month forward PE (price-to-earnings ratio) of the Nifty 50 index trades at 19.1 times, which is on par with its five-year average of 19.14 times. However, the valuations appear stretched in relative terms.Though the relative premium has come down since the start of 2023, it is still high compared with the five-year average. Such premium is determined in terms of the 12-month forward PE multiple. The current premium of the MSCI India index, relative to the MSCI EM and MSCI World indices, stood at 75.4% and 20.2%, respectively, against the five-year average of 64.7% and 18.9%, respectively. medium106119343Experts have advised caution regarding valuations as these are not cheap. “While India’s macros and fundamentals are robust, investors must be mindful that the valuations are no longer very cheap and should be prepared for sporadic volatility,” says Anand Shah, head, PMS & AIF Investments, ICICI Prudential AMC. However, he sees valuation comfort in the small-cap space as the reported earnings of the segment were faster than the price growth on a two-year basis.Market outlookAnalysts advise investors to focus on fundamental investment for the long term rather than looking at short-term movement in the market. “In terms of risk-adjusted return, the equity segment will be the best asset class for investors with medium- to long-term investment objectives,” adds Hajra.Experts are of the view that it is very difficult to time the market and investors should remain disciplined by gradually increasing their exposure to large-cap stocks and should avoid too much exposure to penny stocks.Anil Rego, founder and fund manager at Right Horizons PMS, advises diversification strategy during elevated market conditions. “We believe this is a period for dynamic asset allocation, rather than static due to uncertainty in the global macro environment. Valuations across assets and relative to sub-assets are erratic, requiring tactical asset allocation to deal with event based risks,” says Rego. medium106119370Looking at the sector outlook, auto ancillaries, metals, defence, textiles, capital goods, utilities, logistics and BFSI (banking, financial services and insurance) are expected to perform better in the future. In segments, mid caps are expected to outperform the large caps.In the backdrop of buoyant optimism and strong domestic growth, we select nine stocks whose net earnings are expected to jump by more than two times by 2025-26.The annual net profit estimates provided by Reuters-Refinitiv for Nifty 500 index stocks, for 2025-26, are included. It is also ensured that such estimates are provided by a minimum of five analysts. The base year used for calculating the doubling of net profits is the latest financial year (2022-23). We have selected 2025-26 estimates as these are the most distant estimates available. The selected stocks are also currently offering a double-digit share price potential.Samvardhana Motherson InternationalThe automotive component manufacturing company is set to benefit from acquisitions and cyclical recovery in global automotive production.Though the company missed earnings estimates in the September quarter due to subdued growth in the US and EU regions, it outperformed global production growth in India and China. The order book remains strong at $77bn, with a 22% share from electric vehicles.The efficiencies are expected to improve in the future with the realignment of automotive capacities in the developed markets. The company has announced 15 acquisitions in the past year, which are expected to add $2.5bn to the net revenue in the future. Also, the current business environment will help the company to explore opportunities for further acquisitions. medium106119111The management is also increasing capex to create new capacities in emerging markets that will help support growth in both auto and non-auto segments. Though there is an increase in debt levels due to payout on acquisition closures and high capex, the net debt to EBITDA (or leverage) continues to remain at a comfortable level of 1.9 times, which is within the stated financial policy of 2.5 times.Analysts expect that the stabilisation of raw material and energy prices, expanding product base, wide customer base, de-risking through diversification to limit the regional volatility impact and higher wallet share from premiumisation will help improve its performance in the future.Prince Pipes and FittingsThe PVC (polyvinyl chloride) pipe manufacturer and multi-polymer processor is expected to benefit from strong industry tailwinds like real estate upcycle and rising demand from the infrastructure sector.After a weak performance in the first quarter, the company reported a steady performance in the September quarter, helped by a rebound in the volume growth and range-bound PVC prices.The management has taken corrective steps to regain the lost market share, which includes price cuts, investments in building capacities of HDPE (high-density polyethylene) pipes, foray into bathware, brand building and ramp-up of distribution system. medium106119084The management also believes that CPVC (chlorinated PVC) pipes will have a significant market share over the next 5-10 years, supported by its ease of application and cost structure. The company also plans to invest in niche categories like PPR (polypropylene random copolymer) and composite pipes.The growth outlook is healthy, given its core competency, innovative products, execution prowess, low per capita PVC consumption in India against the global average, demand visibility in agriculture, industrial, infra and real estate sectors, and a strong network of pan-India channel partners.Its presence across the product chain, cost-reduction initiatives, improving return ratios and likely jump in plumbing capacity, through a greenfield capacity expansion plan in the eastern region (Bihar) are other positives.Kalyan JewellersThe jewellery retailer’s long-term prospects remain buoyant, led by the rising share of organised jewellery in retail, and tailwinds such as shifting consumer behaviour (inclination towards product purity, quality standards) and supportive regulatory changes like goods and services tax (GST) and hallmarking.In the September quarter, the company reported a strong consolidated revenue growth of 27% y-o-y. The Indian operations were driven by new store expansion, contribution from new buyers’ addition and improved SSSG (same store sales growth), aided by a higher footfall.The company’s higher share of non-South revenues, high operating leverage and increased high-ticket studded jewellery sales will continue to support margins over the next few years. medium106119045 medium106119054The management is also taking steps to sustain its growth momentum. Leveraging technology to drive footfall, customer engagement (digital marketing, e-commerce, data mining), expansion of showroom network, diversification of distribution channels and divestiture of select, non-core assets to help lighten the balance sheet are some such steps.A Centrum Broking report, released after the second-quarter results, states that Kalyan’s strategy of adding new stores in non-South markets, using the FOCO (franchise-owned, company-operated) model, will increase profitability through reduction in interest costs, release of capital to reinvest in revenue growth, conversion of a few COCO (company-owned, company-operated) stores to the FOCO model, and debt reduction by divesting movable and immovable assets.Orient ElectricThe electrical equipment manufacturer enjoys a healthy growth outlook, supported by good prospects of India’s consumer durable sector. Changing lifestyle patterns and availability of easy credit are likely to create a sustained demand for consumer electronics and appliances among households.In the September quarter, it reported an 11% growth in revenue, led by healthy performance in the ECD (electric consumer durables) segment and higher fan sales in direct to market (DTM) channels.The ECD segment growth is driven by fans, which witnessed value growth due to superior product mix and premiumisation. On the other hand, switchgears grew in high double digits during the quarter and supported the lighting segment. The segment is expected to maintain momentum, supported by B2B projects, traction in housing wires, new launches and a healthy build-up of enquiry and order book in professional luminaries. medium106119000 medium106119022The management has taken initiatives to sustain growth momentum. Enhancing its own DTM network, cost-control programme, higher focus on e-commerce platforms and large format retail business to push premium products are some such steps.The company has also launched its DTC website, which will help in gathering valuable feedback and insights from customers and in monitoring consumers’ purchasing habits. The commissioning of the Hyderabad plant is also expected to improve quality, margins and cost competitiveness.Equitas Small Finance BankThe small finance bank is expected to benefit from the vast addressable market of low-income, self-employed segment that requires financing. The estimated market size of residential property-backed small business lending was ₹22 lakh crore at the end of 2022-23.In the September quarter, the bank reported net profit growth of 70% on a y-o-y basis, supported by strong loan growth, provisions write-back, contained credit costs and higher other income. The disbursements were strong across MFI (microfinance institution), housing finance and vehicle finance segments and grew at 37% y-o-y, whereas deposits grew by 42% y-o-y, led by traction in retail term deposits. medium106118969The NIM (net interest margin) outlook is encouraging, led by higher asset yields that have resulted from lending rate hikes made by the bank in the past year. Moreover, the affordable housing segment, which was launched in 2022-23, is expected to break even in 2023-24 and will start contributing to profitability from 2024-25.The management is also focusing on product development to improve its customer base. It is planning to launch new car loans, credit cards and personal loans, and upgrading its tech platform to enhance customer service and engagement.A Nirmal Bang report that was released after the second-quarter results expects the loan book to grow at 27.5% CAGR (compound annual growth rate) over 2022-23 and 2024-25, and expects RoA (return on assets) at 2.25% in the long term.Star Health and Allied InsuranceThe health insurance company is expected to benefit from the healthy growth prospects of India’s retail health insurance market.Factors like surging healthcare and hospitalisation costs, rising awareness around health, population growth, rise in lifestyle diseases and accelerating urbanisation are driving the sector’s growth.In the September quarter, the company reported 35% y-o-y growth in net profit, but missed Reuters-Refinitiv estimates by 20% due to higher-than-expected claims and expense ratios.However, the management’s focus on deepening its presence in rural India, enhancing the bancassurance channel, superior claim settlement ratio, investments in digital platforms and omnichannel accessibility will help in achieving long-term targets. medium106118955The company’s first-mover advantage, customised products and strong hospital networks will also help it to gain from the sector’s growth.On the other hand, its judicious underwriting, price revisions and improved fraud management will support profitability in the future.An ICICI Securities report, which was released after the second-quarter results, states that a balance between premium price hike and tighter underwriting, leading to optimal volume growth and combined ratio, would be key in setting the trajectory back to the long-term targets of 20% RoE (return on equity), 20% growth, with 200% solvency.Also, improvement in investment income and higher growth possibility under the new EOM (expenses of management) guidelines will provide growth tailwinds.Ashok LeylandThe automotive manufacturer is benefiting from the growing demand for commercial vehicles. The demand for medium and heavy commercial vehicles will be supported by resilient economic activity, higher urban consumption and government thrust on the infrastructure sector.On the other hand, the demand for buses is expected to remain healthy, led by replacement and increasing demand for public transport and school buses. Light commercial vehicles are witnessing traction due to demand from e-commerce and agriculture.In the September quarter, the company reported a 17% y-o-y jump in revenue, led by an improvement in volumes and net realisations. The reduction in input costs helped the company report an EBITDA that was 3.2% higher than the Reuters-Refinitiv estimates. medium106118918The industry is seeing an improved profitability, led by lower steel prices, higher price realisations and operating leverage, and the management expects the growth trends to sustain in 2024-25. The mandatory AC cabin norms for N2 and N3 category vehicles from January 2025 will further drive volumes in the future.A Prabhudas Lilladher report, which was released after the second-quarter results, states that the company is well placed to sustain its market share gains, led by strong demand for modular AVTR (advanced vehicle transformation) trucks, network growth and product launches.It states that price hike, benign input cost, operating leverage and cost control will lead to an EBITDA margin of more than 390 basis points over 2022-23 and 2025-26.Just DialThe internet technology company is a beneficiary of the growing telecom and internet services industry.A surge in the number of smartphone users, rising data consumption, pan-India 5G expansion, government investments to boost digital infrastructure and growing preference for e-commerce for shopping are some of the factors that are supporting the growth of the company and industry.In the September quarter, the company reported a robust revenue growth of 17% and EBITDA margin expansion of 1,041 basis points on a y-o-y basis.The performance was led by continued momentum in paid campaigns and business listings and a reduction in employee costs. Strong collection growth, improved mobile traffic and a strong cash pile have further strengthened its operational performance. medium106118889An ICICI Securities report states that high exposure of Just Dial to B2B e-commerce space will bode well as the total addressable market of B2B e-commerce is expected to grow at a CAGR of more than 55% over 2022-23 and 2024-25.Another report from JM Financial, which was released in September, states that the company will see strong earnings recovery over the next 2-3 years, partly aided by a low, Covid-affected base. It expects its net profit to jump by more than four times between 2022-23 and 2025-26.Triveni TurbineThe industrial steam turbine manufacturer is set to benefit from the energy transition, increasing industrial energy demand and rising capex momentum in India, Europe and Southeast Asia.In the September quarter, the company reported 32.4% and 39% y-o-y jump in revenue and PAT (profit after tax) growth, respectively, supported by strong after-market sales and higher other income. The order book of ₹1,480 crore was at a record high, led by a robust growth in domestic orders.Traction in sectors like cement, steel, process co-generation and distilleries is driving the domestic order book, whereas sectors like process co-gen, biomass and municipal solid waste are supporting the export sales. medium106118824 medium106118837The after-market segment is witnessing growth from the refurbishment business and spare sales. Also, API-driven turbines are seeing a healthy demand due to a jump in oil and gas investments worldwide.The management is focusing on investments in R&D (research and development), innovation, manufacturing excellence, expansion of the addressable market, customer centricity and cost control to sustain performance.Moreover, factors like strong execution capabilities, extensive sales and marketing network, diverse customer base, global presence, new product development, focus on capturing high-value orders, and dynamic and collaborative workforce are the key growth drivers.