Morgan Stanley picks cyclicals over defensives as India’s growth cycle unfolds; bets on these stocks
As India advances towards the post-pandemic world, the economic growth story is unfolding and getting stronger. This has led analysts at global brokerage and research firm Morgan Stanley, to go overweight on cyclicals over defensive sectors in India. Although the second wave of the coronavirus pandemic continues to surge, the case fatality ratio in the country is cumulatively at 1.3% and remains below the global averages and should not pose a threat to the economic recovery unless there are widespread lockdowns, Morgan Stanley analysts led by Ridham Desai said earlier this week.
So far this year, industrials have gained 11% while healthcare stocks are down 9%. Meanwhile, materials are up 12% and consumer staples are down 5%, clearly making a case for cyclical sectors. Among these, Morgan Stanley analysts are bullish on Fast Moving Electrical Goods. Here are their top stock picks
The company enjoys a strong leadership position across key product segments, in terms of volume market share. “Havells is rolling out products catering to rural markets (currently <3% of sales) and, in our view, could surprise consensus on growth, hence multiples could remain elevated considering the potential medium-term opportunity,” Morgan Stanley analysts said. Recent developments around Havells that aid the bullish outlook include the company’s plans for capital expenditure and doubling its small domestic appliance business in 2 years. The price target for Havells is set at Rs 1,200 apiece, translating to over 12% upside from current levels.
Voltas is the leading franchise in room air conditioners. The company managed to increase its market share by 180 basis points last year. There are multiple growth drivers for Voltas ahead, which includes rising urbanization, increasing disposable income, elevated temperatures, a small replacement market, and improving quality of power supply. Further, the recent price hikes add to the list. The stock is expected to climb up to Rs 1,092 per share, resulting in an 8% upside from current levels.
Crompton Greaves Consumer
The brokerage firm expects Crompton to see value growth in the lighting segment, followed by volume growth after having seen price erosion for the last couple of years. “We expect CGCEL to maintain high return ratios (ROE and RoCE), strong well-managed working capital and cash flow conversion,” they said. The target price for Crompton is set at Rs 452 per share, for which the stock would need to gain nearly 14% from current levels.
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