Fundamental Picks: HDFC Securities bullish on these 4 stocks in weak market

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The Indian equity market slumped over two percent in the last two sessions, owing to weak global cues and concerns over the spread of the Delta variant of coronavirus across many Asian countries.

Amid this market weakness, the Retail Research Desk at HDFC Securities has recommended four stocks as its ‘Fundamental Picks’ to buy at the current market price and further add on dips for a time horizon of two quarters. These include Larsen & Toubro, Cholamandalam Investment and Finance Company, IIFL Wealth Management, and HSIL.

Here are the top recommendations from the brokerage:

Larsen & Toubro

We remain comfortable on L&T, given its strong order book, healthy balance sheet, and robust services business. L&T can deliver high-teens PAT CAGR over FY2020-23 and pay out high dividends.

We feel investors could look at buying the stock at the LTP and add on dips to Rs 1,478 for base case fair value based on SOTP of the stock is Rs 1,782 and bull case fair value is Rs 1,894 over two quarters.

Cholamandalam Investment and Finance Company

Cholamandalam Investment and Finance is the third-largest asset finance company (AFC) in India and Chola MS is the eighth largest private general insurer in terms of gross written premium (GWP). We expect steady compounding of both its NBFC and general insurance businesses on the back of vast and scalable opportunities in the highly underpenetrated retail-oriented market.

We expect growth in investments and reduction in holding company discounts to be key drivers for re-rating of the stock.

We believe investors can buy the stock at LTP and add on dips to Rs 568 for a base case target of Rs 711 and a bull case target of Rs 785.

IIFL Wealth Management

We expect the total income of the company to increase at 14.7 percent CAGR over FY21-FY23 driven by strong growth in recurring revenue assets. Due to buoyant capital markets, investors could park a part of their profits/wealth with wealth management companies like IIFL Wealth Management; this could lead to faster growth in AUM.

Investors can buy the stock at LTP and add on dips to Rs 1,220-1,225 for a base case fair value of Rs 1,523 and bull case fair value of Rs 1,642 in the next two quarters.

HSIL

Established track record, experienced promoters, diverse institutional clients across industries in the packaging division along with long term supply contract for the building products with its group company Brilloca Ltd which has a well-recognised brand name in the sanitary ware segment are the key positives for the company.

Ongoing and future capex plans to enhance its product offerings and management’s decision to serve other players in building products space will be key monitorable.

We think the base case fair value of the stock is Rs 272 and the bull case fair value is Rs 314 over the next two quarters. Investors can buy the stock at LTP and add more on dips to Rs 223-225 band.

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