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Five stocks on top of D-Street’s watchlist for October F&O series

ET takes a look at five stocks which are gaining momentum in the October series.

, ET Bureau|
Oct 03, 2019, 07.47 AM IST
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Reuters
Market-3---Reuters
Auto makers are seeing build-up of bearish bets.
The October F&O series has seen a dip in investor confidence on concerns over the continued troubles in the country’s financial sector. Most of the stock futures which have seen a surge in open interest are from the sector. Auto makers are also seeing build-up of bearish bets. ET takes a look at five stocks which are gaining momentum in the October series and details their near-term outlook.

IDFC First Bank

CMP: Rs 38.6
OI change in October series: 23.85%
Spot price change in October series: -9.06%

IDFC First Bank has seen the biggest increase in open interest in October series. Morgan Stanley sees 45% downside in the stock. “Corporate asset quality has surprised negatively despite high past recognition and provisioning, and remains vulnerable given that around 60% of the credit book is still non-retail and we continue to see rating downgrades in India. Further, we have concerns on retail asset quality given the riskier profile of borrowers and have raised credit cost forecasts,” said Morgan Stanley in a September 30 note, cutting target price to Rs 24 from Rs 30, while retaining ‘underperform’ rating. Sandeep Porwal, technical analyst at Ashika Stock Broking, said the stock has failed to sustain above its 50-day moving average level of Rs 42. “Since then we have witnessed sharp sell-off. Fresh leg of downside is expected once it starts trading below Rs 36,” said Porwal.

State Bank of India

CMP: Rs 255.9
OI change in October series: 13.57%
Spot price change in October series: -8.98%

The stock is seeing build-up of short positions on concerns over exposure to stressed borrowers and uncertainty around its asset quality. Morgan Stanley said there is a credit crunch going on in India among weaker-rated borrowers as flow of credit from challenged lenders has stalled and it sees no signs of this reversing yet, implying risk of continued defaults at these borrowers. “Given SBI’s size, it is one of the largest lenders to many of these stressed borrowers,” said Morgan Stanley in a recent note, downgrading the stock to ‘equal-weight’ from ‘over-weight’. The stock is a short if it breaks the Rs 250-level, said Rajesh Palviya, head-technical and derivatives at Axis Securities.

RBL Bank

CMP: Rs 299.3
OI change in October series: 17.86%
Spot price change in October series: -18.27%

Concerns over the health of the banking industry have also affected the shares of RBL Bank, which were among the biggest laggards in Tuesday’s sell-off in banking stocks. The stock has fallen over 42% in the last one year compared to a gain of 14.6% in the Bank Nifty during the same period. “It has been making lower top-lower bottom and the trend is in pressure as the stock is trading at its multipleyear low levels. The price pattern suggests build-up of short positions,” said Chandan Taparia, derivative analyst at Motilal Oswal. Taparia expects the stock to fall to Rs 275-Rs 280 in the near term.

Cipla

CMP: Rs 412.6
OI change in October series: 17.05%
Spot price change in October series: -6.09%

The stock is at its lowest level in a year and is seeing build-up of short positions as the drug maker recently received 12 observations from the US Food and Drug Administration for its manufacturing facility in Goa. Brokerage Edelweiss believes that risks are priced in, and has upgraded the stock to ‘buy’ from ‘hold’ while retaining target price of Rs 500. “Though branded franchise in India, private label in South Africa and generic business in the US are on track, volatile performance has led to valuation de-rating... the company’s performance will normalise from H2FY20 and accelerate from FY21,” said Edelweiss. However, the outlook for Cipla remains bearish on technical charts. “Outlook is bearish for Cipla as it has broken important support level of Rs 457. We have seen follow-up correction. One has to see the level of Rs 433 being crossed for a minor short covering bounce,” said Porwal of Ashika Stock Broking.

BPCL

CMP: Rs 493.9
OI change in October series: 11.82%
Spot price change in October series: 5.13%

The stock has been gaining momentum, led by short covering, amid news that the government may off-load stake in the refiner and fuel retailer to foreign and private firms as part of its strategic disinvestment plan for this year. “With a Committee of Secretaries recommending BPCL’s complete stake sale... we think the likelihood of its privatisation has considerably increased,” said Nomura, retaining a ‘buy’ rating with target price of Rs 480. “If there is significant investor interest, on our preliminary estimates, we think the valuation for the deal could easily be Rs 750-850/share,” added Nomura. One can buy the stock around Rs 480 levels for a target of Rs 535-Rs 540 in the next 10 to 20 days, said Palviya of Axis Securities. Palviya advises keeping a stop loss of Rs 465.

5 stocks that can offer solid returns in an uncertain market

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Bajaj Finance | Buy | Target Price: Rs 4,550

2 Oct, 2019
With the upcoming festive season and several planned online and offline mega sales events ahead, Emkay Global has named Bajaj Finance as the best bet to play the India consumption story. The brokerage maintained that both AUM and EPS CAGRs of ~36% over FY19-21E (after adjusting for tax cuts), backed by a solid cross-selling franchise and a high-quality sourcing mechanism. The company's board has approved a QIP worth Rs 8,500 crore, which provides comfort over its valuations. The brokerage upgraded FY20/21 EPS estimates by ~10%/9%. Key downside risks include elevated consumer leverage and prolonged rural distress. (Source: Emkay Global)
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