Policy support likely to continue: 4 stocks from railways sector with upside scope of up to 30%

There are many sectors which have been able to do well because of policy push by the government. Many may not realize that “Tipper” which is a kind of light commercial vehicle ( LCV) did extremely well due to the fact that it is used in road construction and in the last eight years, that has done extremely well. Similarly a tile company did well because there was a housing boom and auto ancillary which was focussed on EV did well due to push to EV. Now with increased probability of continuation of policy push, some of these sectors and companies are likely to see continued tailwinds. ET screener powered by Refinitiv’s Stock Report Plus applies different algorithms & filters to all BSE and NSE stocks, and lists stocks which fulfill the various criteria as specified into the algorithms & filters to find those which might help navigate the stock market.

There are sectors which under perform for years and then they come back to focus. Thanks to the fact that the textile industry was completely dominated by China and other countries, the Indian textile industry has been in bad shape for decades. However, post covid, partially due to China Plus one narrative. Secondly due to the fact that the government has been focusing on manufacturing, textile stocks have come into focus. This list is drawn from Stock Reports Plus, powered by Refinitiv, with over 4,000 listed stocks along with detailed company analysis focusing on five key components - earnings, fundamentals, relative valuation, risk and price momentum.

Financial sectors stocks tend to do well, where there is inflow from foreign portfolio investors, the reason, it is their preferred sector for taking exposure to the Indian market for decades as it can also act as a proxy for GDP growth. After a gap of two months, September and October, FPI have been net buyers in the month of November and till date in December. Given the fact that in the last one year there has been a sort of underperformance by financials stocks, there is high probability that we might see some of them making a come back, we take a look at stocks from this sector where one of one of valuation matrix meets the criteria for investing for long term.

While the recent performance of stocks like REC, PFC and recently listed IRDEA has brought focus back to one segment of power companies. But the fact is that in the last few years, the sector has been going through a consolidation. Some of it was forced by the banks due to many companies going under the IBC and some due to the fact that any industry which has gone through a troubled phase of almost a decade, the players who are able to survive tend to get more attention because they have learnt the art of surviving a tough phase which is one most important feature for long term survival. Power sector stocks are now catching up with what the market has witnessed in the last few years.

In 2008, the IPO of a power company got subscribed in less than a minute of its opening and the size of that issue was Rs 11,563 crore. This just shows the desire to own power sector stocks at that point of time. From those days of frenzy to the nadir in 2014, when power companies were on the top of the list of NPA of the banks. Power companies have seen both the extreme of valuations. It is a sector where after many failures and to some extent a consolidation, some companies have emerged which know how to deal with all kinds of economic and industry cycles. That is probably the reason why a number of companies from the power sector have seen a sharp re-rating in the last one year. Hoping the survivors have learnt their lessons.

Among many industries which have seen a strong transformation in the last nine years due to policy initiatives has been the sugar industry. This is despite the fact that sugar is a state subject where central policies can only play a limited role. If one looks at the balance sheet of a large number of them, they are far better placed than they were six years ago and to some extent in the last two years even the institutional investors have started to take exposure in this sector which they have avoided for more than three decades.

Recent spike in prices of sugar futures in the global commodity markets have brought back focus on the sugar sector. However, in the case of India, the sugar sector has been going through a transformation much before that and the bottom lines are becoming better for a large majority of companies. All thanks to mixing ethanol with other fuels. As the underlying macro changes sugar companies are making a comeback on the analyst list and some of them have seen an increased participation by institutional investors.

Between 2005 and 2008 a number of new players entered into the power sector, right from established industrial houses, to new companies without any experience in the power sector. Anything to do with power got valuations which were unheard of in that sector. Very soon, there was a u-turn on the street, with power stocks becoming the worst performer. The reason, a large number of these companies got stuck with legal cases, due to coal issues and the captive mine case hit them very badly. After a long gap some of them, including PSU’s, are back on the buying list.

Every industry has different operating conditions which have high correlation with the kind of ROE companies in the industry generate. The bigger question is how sustainable that number is. Of all the stocks, which our algorithms come up with, we took companies from, FMCG, software, financial services and speciality chemical. ET screener powered by Refinitiv’s Stock Report Plus lists down stocks with high upside potential over the next 12 months, having an average recommendation rating of “buy” or strong buy .