In its edition of Prime Picks, broking firm IIFL (India Infoline) has put together eight large cap and six midcap companies that are well placed to deliver high returns in the year 2011. The highest exposure is to the Auto and Financial space (assuming equal investment in each stock irrespective of market cap) followed by the Energy related space.
``We like consumption themes like Autos that will continue to benefit from rising income levels, both in rural and urban markets,`` it said.
While Finance companies may be seen having tough time in the near future, it believes they will be one of the alpha generators over 12 months.
The Energy related space comprises Metals and Oil & Gas stocks. Commodity prices will continue to rise in 2011 in our view. This will benefit integrated metals players.
For the Oil & Gas space, the impact will be mixed, but deregulation expectations are high. The midcap names have been vigilantly picked after giving due consideration to corporate governance, growth and valuations.
IIFL recommends avoiding the Cement sector facing supply overhang and Real estate, as the sector faces a sluggish demand scenario, financing problems and has serious governance issues.
Large caps
Bajaj Auto: Robust domestic & export growth; industry best margins
L&T: Best placed to benefit when Government & industrial capex revives
M&M: Rural India play; Ssangyong acquisition to be value accretive
REC: Play on power capex; strong traction in sanctions; stable spreads; robust asset quality; impressive return ratios
Reliance Industries: Recovery in GRMs, stable petrochemical spreads; healthy balance sheet
SBI: Extensive reach; well-diversified portfolio
Sterlite: Extremely attractive valuations; strong earnings from zinc and power businesses
Tata Steel: Raw material integration; earnings boost with improved European performance
Mid caps:
Escorts: Volume growth to beat consensus estimates; balance sheet restructured; Valuations cheap at P/E of 6.9x F9/12E.
OnMobile: Dominates domestic VAS industry (33% share); Telefonica deal to bear fruit in FY12; 49% EPS cagr over FY10-12E.
Petronet LNG: Gains from strained demand-supply balance for natural gas.
Radico Khaitan: 15% volume growth in mainline brands; earnings 53% cagr between FY10-12E.
Unity Infra: Healthy balance sheet; robust revenue cover; strong earnings growth potential; cheap valuation.
Yes Bank: Best bet in private banking; Robust balance sheet growth; superior return ratios; negligible NPLs.
Source IIFL
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