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Top fund managers take shelter in blue chips in view of event risks

Most of these companies have reported a rise in March quarter profit.

Updated: May 15, 2019, 11.31 AM IST
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HDFC Bank is most popular among fund managers, with 535 fund schemes owning it.
Largecaps are the place to be on Dalal Street as investors navigate multiple headwinds and brace for key event risks in the foreseeable future.

In signs of acute risk aversion, India’s top fund managers are currently betting on the bluest of the blue chips – leaders from banking, oil & gas, auto, FMCG and IT. These are the sectors that can potentially be on the forefront in the next bull run.

Out of some 2,000 equity fund schemes that the industry offers, some 300 are betting on these 13 blue chips – HDFC Bank, ICICI Bank, Axis Bank, State Bank of India, Infosys, L&T, ITC, Reliance Industries, Kotak Mahindra Bank, Maruti Suzuki, HDFC, Sun Pharma and Mahindra and Mahindra.

Over 300 MF schemes

Among these stocks, HDFC Bank is most popular among fund managers, with 535 fund schemes owning it. ICICI Bank comes next and is part of portfolios of 511 schemes, while Axis Bank features in 458 schemes, SBI in 456, Infosys in 451 and L&T in 418, data available with Ace Mutual Fund showed.

Despite a major slowdown in the auto sector, Maruti Suzuki was owned by as many as 345 mutual fund schemes as of April 30 while M&M is owned by 302 schemes. Index heavyweight RIL was owned by 381 schemes, and Sun Pharma 305.

Most of these companies have reported a rise in March quarter profit and analysts see further upside in most of these stocks going forward. Already, majority of these stocks have delivered an average return of 11.50 per cent since January 2018, whereas BSE Sensex advanced 10 per cent. M&M stock is down 17 per cent since January 2018 and Sun Pharma 26 per cent.

Private lender HDFC Bank last month reported a 23 per cent rise in profit at Rs 5,885 crore for March quarter on healthy growth in net interest income. It had posted Rs 4,799.28 crore profit for the same quarter of 2017-18.

As many as 523 mutual fund schemes own the HDFC Bank stock. According to Reuters, 24 analysts had ‘buy’ calls and 19 had ‘outperform’ ratings on HDFC Bank. Brokerage Hem Securities has a ‘buy’ call on HDFC Bank with a price target of Rs 2,650 citing healthy balance sheet and strong growth parameters.

Likewise, mortgage lender HDFC posted nearly 27 per cent YoY rise in standalone net profit at Rs 2,862 crore for March quarter.

Oil-to-telecom major Reliance Industries posted a 10 per cent increase in consolidated profit for Q4FY19. Brokerage Centrum Broking believes the stock offers an attractive opportunity to enter after the recent correction of over 10 per cent.

“With continued strength in retail business supporting earnings, even at lower assumptions for petchem and JIO, we see RIL’s EPS growing at a CAGR of 27 per cent over FY19-21E. We maintained a ‘buy’ rating on the stock with a revised price target of Rs 1,450 (Rs 1,480 earlier),” Centrum said.

Telecom major Bharti Airtel reported a surprise 29 per cent jump in March quarter profit as exceptional incomes and Africa business helped it offset losses in India mobile services operations.

“Airtel’s 4QFY19 results were ahead of estimates. It reported meaningful revenue/Ebitda growth in India business after 10 quarters. Sustainability of this is key catalyst,” HDFC Securities said.

The brokerage maintained a ‘Buy’ rating on Bharti Airtel with a target price of Rs 374.

In the financial space, Axis Bank and SBI turned around in March quarter. While Axis Bank reported a net profit of Rs 1,505 crore for Q4 against a net loss of Rs 2,189 crore reported for the corresponding period of previous year, SBI reported Rs 838 crore profit for the quarter against a Rs 7,718 crore loss in Q4 last year on improved asset quality.

Reliance Securities gave a thumbs-up to SBI’s quarterly numbers. The brokerage said SBI’s strong liability franchise and better capital position differentiate it from other PSU peers. Moreover, industry-best cost of funds also helps its lower asset side risks.

“Upwardly revising our earnings estimates by 15 per cent and 18 per cent for FY20 and FY21 owing to a moderation in credit costs and lower slippages, we maintain our ‘buy’ recommendation on the stock with a revised price target of Rs 390 (from Rs 370 earlier),” the brokerage said in a report.

Kotak Mahindra Bank reported a 25 per cent rise in March quarter profit, while ICICI Bank posted a five per cent drop in standalone profit for the quarter ended March 31.

Brokerage firm Nirmal Bang is bullish on Kotak Mahindra Bank with a target price of Rs 1,638.

Engineering and construction major Larsen & Toubro (L&T) posted a 7.9 per cent rise in its consolidated net profit at Rs 3,418.24 crore for the quarter ended March 31. Its net profit stood at Rs 3,167.47 crore in the same period last year. Japanese brokerage firm Nomura has a ‘buy’ call on L&T with a target price of Rs 1,670.

IT major Infosys posted a 10.5 per cent rise in consolidated net profit at Rs 4,078 crore for the March 2019 quarter, and guided towards 7.5-9.5 per cent growth in revenue for FY 2019-20.

JM Financial has a ‘buy’ call on Infosys with a target price of Rs 790. “The management continues to maintain view of strong demand outlook across most of the verticals. The company gave a confident outlook for both BFSI and retail, and expects an acceleration in telecom to continue,” the brokerage said.

Country’s largest carmaker Maruti Suzuki posted a 4.6 per cent fall in March quarter profit at Rs 1,795.6 crore, hit by adverse foreign exchange rates and high commodity prices. The company had posted Rs 1,882.1 crore profit for the same period of 2017-18. Shares of Maruti Suzuki are down 31 per cent year to date to trade at Rs 6,602 on May 13.

Yes Securities has an ‘add’ rating on Axis Bank and ‘sell’ call on Maruti Suzuki with price targets of Rs 800 and Rs 5,850, respectively.

FMCG major ITC posted 18.73 per cent YoY rise in net profit at Rs 3,481.90 crore in Q4FY19 over Rs 3209.07 crore in Q4FY18. On the publicly available Reuters database, ITC had 12 ‘buy’ and 18 ‘outperform’ ratings as of May 13.

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