Buy BEL, SBI & Britannia shares for solid returns in next one year: Religare Broking's Ravi Singh

Ravi Singh, Senior Vice-President (Retail Research) at Religare Broking, expects benchmark BSE Sensex may go up to the 1 lakh mark by next Diwali and the broader NSE Nifty could climb up to 28k level. However, global economic trends, especially fluctuations in commodity prices and geopolitical tensions could affect investor confidence, Singh told Business Today.

From the Nifty50 pack, the market expert says Bharat Electronics Ltd (BEL), State Bank of India (SBI) and Britannia Industries shares, saying these stocks can offer solid. In the small-cap segment, he likes Andhra Paper, Andhra Paper and Bliss GVS Pharma.

For Samvat 2081, Singh advised investors to adopt a cautious and selective approach while trading. Here are the edited excerpts from the interview:

Q - What are your targets for Sensex and Nifty for next Diwali?

A - Indian markets are indeed good for long term perspective but for predicting targets for next year corporate earnings, government policies, and global economic trends will play crucial roles in shaping market performance. If the current trajectory of growth continues, some forecasts indicate the Nifty could reach levels between 27,500 and 28,000, while the Sensex may aim for targets around 1,00,000. Investors should stay cautious, monitoring developments in inflation, interest rates, and geopolitical events that could impact market sentiment as the festive season approaches.

Q - Name three key foreseen events that could be make-or-break for the domestic stock market over the next one year.

A - Over the next year, three key events could significantly impact the domestic stock market. First, the RBI's monetary policy decisions, particularly regarding interest rates and inflation control, will be crucial for market. Second, the outcome of the 2024 US elections could shift market dynamics, influencing global economic reforms and foreign policies. Finally, global economic trends, especially fluctuations in commodity prices and geopolitical tensions could affect investor confidence. Monitoring these events will be essential for understanding market volatility and making informed investment decisions in the coming year.

Q - 3 smallcap stocks that can outperform market over the next one year. Give target prices and rationale.

A - When considering small-cap stocks for a one-year investment, the following recommendations can be highlighted:

1. Andhra Paper: This stock has experienced a 27 per cent correction from its recent highs and is now showing signs of a reversal. It is recommended to initiate a long position in the price range of Rs 97-100, targeting levels of Rs 128-132, with a stop loss set below Rs 88.

2. Dalmia Bharat Sugar and Industries Ltd: The stock has rebounded strongly from its major support level of Rs 430-440. A buy is advisable at Rs 465-467, with potential upside exceeding 20 per cent, targeting Rs 575-580, and a stop loss below Rs 430.

3. Bliss GVS Pharma Ltd: Currently trading in a range, this stock is expected to make a significant upward move if it surpasses Rs 130. It is recommended to buy above Rs 132, with targets of Rs 150-154 and a stop loss below Rs 122.

These stocks exhibit promising reversal patterns and support levels, making them worth considering for investment. 

Q - Valuations have started catching up with earnings. Many stocks have plunged following poor set of Q2 results. Which sectors do you think may find it hard to justify valuations? Give rationale.

A - Recent quarterly results reveal that the banking sector has notably lagged behind expectations. In contrast, the pharmaceutical and realty sector displays encouraging prospects for the near future, while the IT sector appears stable without significant momentum. As a result, investors might think about directing their investments toward the pharmaceutical and real estate sectors for both short- and long-term gains, while refraining from starting new long positions in benchmark indices.

Q - Name three Nifty stocks that can offer solid returns in next one year. Give target prices and rationale behind the optimism. 

A - Nifty has corrected almost 8 per cent from its peak and there are chances that it will correct further towards 23,600. With that being said, we can accumulate Bharat Electronics Ltd, State Bank of India and Britannia shares. 

1. After correcting almost 25 per cent, BEL's stock has taken strong rebound and we recommend initiating a long position near Rs 284-286 for targets of Rs 320-330 with a stop loss below Rs 265.

2. SBI has formed a good base near its demand zone and looking promising ahead for short- to long-term. We recommend initiating a long position in the price range of Rs 815-820, with targets of Rs 900-920 and a stop loss set below Rs 770.

3. After exhibiting strong reversal price action, Britannia shows promising potential for both short- and long-term performance. We recommend going long at the current market price of Rs 5,780, targeting Rs 6,400-6,500, which represents an upside potential of 11-13 per cent. A stop-loss should be set below Rs 5,600 to manage risk effectively.

Q - Do you think PSU rally is over? Defence, railways and PSU NBFCs have seen sharp corrections of late. Do you find value in them?

A - The recent rally in PSUs may be experiencing a pause, particularly in sectors like defence, railways, and PSU NBFCs, which have faced significant corrections. However, this pullback could present value opportunities for long-term investors. The government's ongoing focus on infrastructure and defence spending well for these sectors. Additionally, PSU NBFCs may benefit from increasing financial inclusion and regulatory support. While volatility persists, careful selection of fundamentally strong stocks within these sectors could yield promising returns in the future, making it essential for investors to reassess their strategies in light of current market conditions.

Q - Where is the margin of safety in this market? Name a few stocks that you believe are undervalued due to near-term overhang and could deliver smart returns over the next one year.

A - In the current market condition, the margin of safety can be found in stocks that have been unjustly pressured by near-term challenges but still possess strong fundamentals. For instance, companies like Steel Authority of India (SAIL), Bharat Electronics Limited (BEL) and NHPC are currently undervalued due to short-term overhangs, such as fluctuating commodity prices and geopolitical tensions. These stocks are well-positioned to benefit from long-term growth trends in their respective sectors. With a recovery in market sentiment, they could deliver substantial returns over the next year, making them appealing for value-focused investors.

Q - Large FPI outflows have hurt domestic stocks. Do you see any reversal ahead? 

A - Large FPI outflows have indeed impacted domestic equity market, leading to increased volatility and pressure on the markets. Factors such as a robust economic recovery, favourable government policies, and attractive valuations could encourage FPIs to return. Additionally, if global economic conditions stabilise and interest rates in developed markets plateau, it may enhance the appeal of Indian equities. Investors should remain cautious, as a shift in sentiment could lead to renewed FPI interest, driving a rebound in the domestic stock market in the coming months.

Q - What strategy should stock investors follow in Samvat 2081?

A - Investors should adopt a cautious and selective approach in their trading and investment strategies. With expected volatility stemming from the upcoming US elections and economic uncertainties, it’s wise to refrain from high expectations for benchmark indices at this moment. Instead, focusing on individual stocks is recommended until the market demonstrates a more defined direction. This targeted strategy allows for better navigation of potential fluctuations while identifying opportunities with solid fundamentals.

Q - How much cash level on a scale of 0-100 per cent do you think investors should have at present to make most in the next one year?

A - Currently, investors should consider maintaining a cash level of around 40-50 per cent of their portfolio. This range allows for flexibility to capitalise on potential market dips while still being invested in growth opportunities. With ongoing market volatility and uncertainties stemming from global events, having this cash reserve can enable investors to take advantage of attractive valuations when they arise. Balancing between cash and equity exposure is crucial. This approach provides a cushion against market fluctuations while positioning investors to benefit from potential rebounds in high-quality stocks over the next year.