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Stock Analysis, IPO, Mutual Funds, Bonds & More

15 stocks from six niche sectors showing signs of leading next rally

These stocks come from unusual sectors such as insurance, asset management, paints, etc.

, ETMarkets.com|
Nov 20, 2019, 12.27 PM IST
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The paint industry consists a mix of both organised and unorganised players, but the organised players occupy a major share of the market amid the ongoing liquidity crunch and slowdown.
The first requirement to spot tomorrow’s big gainers is an ability to identify the right industry in times of distress. When stocks from across midcap and smallcap segments are witnessing heavy selling, select counters from certain niche segments are hovering at record high levels despite the economic slowdown.

These stocks come from unusual sectors such as insurance, asset management, paints, footwear, retailers and cable sectors.

Starting with the insurance industry, shares of heavyweights like ICICI Prudential Life, HDFC Life, ICICI Lombard General Insurance and SBI Life scaled their record high levels over the past fortnight.

What is driving the sector?

Shyamsunder Bhat, Chief Investment Officer, Exide Life Insurance, says unlike NBFCs or banks, the insurance sector does not have NPA, liquidity or solvency issues. Almost all insurers are well-capitalised and with reasonably comfortable solvency ratios.

“This is one of the reasons we have seen investors come to the insurance sector. Investors are appreciating the value that this sector offers, which is what is reflected in these multiples,” he told ETMarkets.com.

In the asset management space, HDFC AMC and Reliance Nippon have proved their mettle. Both HDFC AMC and Reliance Nippon scaled fresh all-time highs of Rs 3,770 and Rs 378.10 on November 14.

“A very big trend is playing out in the insurance and AMC space. It has all the makings of a very large trend,” Atul Suri, Marathon Trend-PMS, told ETNow.

MSCI, the world’s biggest index compiler, last month added Berger Paints, HDFC Asset Management, ICICI Prudential Life and SBI Life to its India index.

Paint companies Akzo Nobel (Rs 2,275), Asian Paints (Rs 1,833) and Berger Paints (Rs 534) are doing a colourful job in financial portfolios with their recent record performance.

The paint industry consists a mix of both organised and unorganised players, but the organised players occupy a major share of the market amid the ongoing liquidity crunch and slowdown.

“Post RERA and GST implementation, unorganised players are not able to continue their business at the same pace, and demand is shifting to organised players. The repainting segment is not slowing down, even though there is a slowdown in the new homes segment. These companies have good pricing power. So, the rise in input cost is being passed on, and GST rates have come down, which bode well for the sectoral leaders,” said Rusmik Oza, head of fundamental research at Kotak Securities.

With a 50 per cent year-to-date rally, Relaxo and Bata are buzzing on Dalal Street with their strong outperformance against the benchmark Sensex, which advanced 11 per cent during this period.

Footwear players are planning to strengthen their presence in the domestic market. Bata India in October said it would make its presence stronger by adding 500 stores in next five years, focusing mainly on smaller markets. The company recently reported a 30 per cent YoY rise in consolidated net profit to Rs 71.30 crore for the September quarter.

Dolat Capital, which has an ‘Accumulate’ rating on Relaxo, believes the company is likely to increase its distribution reach in southern and western markets going ahead.

“Store addition and premiumisation are likely to accelerate growth. We continue to believe that the company has attractive product offerings and has the ability to premiumise portfolio at the lower end of the pyramid,” it said in a report on November 5.

Shares of Polycab India and KEI Industries are trading around their all-time levels in the cable sector. Financial stability and demand for their products seem to be key to their success. Polycab posted 115 per cent year-on-year rise in profit at Rs 191.82 crore in Q2FY20 over RS 89.20 crore reported for Q2FY19. KEI’s net profit jumped 83 per cent YoY to Rs 76.02 crore during the quarter under review.

Brokerage firm Angel Broking has a ‘hold’ rating on KEI with a target price of Rs 661. The brokerage expects KEI to report net revenue of around 18 per cent CAGR at Rs 5,872 crore during FY2019-21E mainly due to higher order book execution in the EPC segment, growth in EHV business and higher exports.

On the bottomline front, Angel Broking foresees around 29 per cent CAGR to Rs 300 crore over the same period on the back of strong volume growth.

Phillip Capital says Polycab’s product categories, strong business model, superior reach and brand recall offer investment comfort – especially in a competitive economic environment.

“Over the next two years, RoCE and RoE will be 24 per cent and 18 per cent, and operating cash flow will be Rs 760 crore. Currently, we expect earnings growth of 29 per cent CAGR over FY19-21,” it said.

Shares of Trent and Avenue Supermarts are also in demand.

Edelweiss Securities says Trent provides an opportunity to invest in four strong brands – Westside, Zudio, Star Bazaar and Zara. “Rolling forward, we retain 12-months’ forward price-to-equity (PE) multiple of 50 times to Westside, 35 times to Zara and price/sales of 1.5 times to Star Bazaar to arrive at a target price of Rs 590,” the brokerage said. Trent traded at Rs 500 on November 15.

All the above-mentioned stocks scaled their new highs between October 30 and November 15.
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