Most wanted stocks 2024: 6 stocks fund managers have been most bullish on in last one year
Despite the pullback in recent weeks, the stock market has rewarded investors well over the past year. The BSE 500 index has gained 34.5% during this period, partly riding on the continued strength exhibited by the domestic economy and a healthy earnings footprint of India Inc.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} The market has powered on amid intermittent hiccups, including rising geopolitical tensions, concerns over global recession and a slowdown in China. Mid and small caps, as well as PSU stocks, have put on a show, as Indian stocks have continued to outperform global peers.
Stocks fund managers are betting on
Domestic equity fund managers, leaning on wisdom gained from previous market cycles, have tempered their excitement. These market mavens have raised vigilance, pulling various risk levers to build portfolios capable of showing better resilience in preparation for tougher roads lying ahead. In this eleventh edition of Most Wanted Stocks, we have zeroed in on a basket of stocks that have been consistently favoured by mutual fund managers. These six stocks have seen a gradual rise in mutual fund holding for four consecutive quarters since September 2023.
To arrive at this list of most preferred stocks, we applied several filters (see graphic). We started by identifying BSE 500 stocks that have seen a consistent rise in mutual fund ownership over the past four quarters. Next, we looked at stocks which had at least 5% mutual fund holding in total share capital and were held by 25 or more equity schemes as of September 2024.
The list was further screened to retain only those stocks that boasted an average return on equity (RoE) of more than 15% over the past three years. Stocks that saw a deterioration in RoE profile, were trading at exorbitant valuations or had unfavourable analyst recommendations were weeded out. This gave us the final list of the six most sought after stocks by mutual funds.
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Some of the stocks thus identified in previous years have given stellar returns. Vinati Organics has delivered 26% CAGR since 2014. An investment of Rs.1 lakh in the stock has grown to Rs.9.5 lakh in 10 years. Bajaj Finserv (27.5% CAGR since 2015), Coramandel International (28.5% since 2016) and Bharat Electronics (48% since 2018) are the other multibaggers from previous years. Check the success rate of our previous lists on page 6.
A few caveats must be noted before individual investors try to mimic the fund managers’ big moves. These stocks have been added gradually over a period of time, with positions built from lower valuations.
Fund managers may also move out of positions swiftly, depending on market conditions and business fundamentals. Investors should ideally exercise their own due diligence and invest only surplus amounts not likely to be needed anytime in the next few years.
How the most wanted stocks were identified
1.From the BSE 500 index, we identified stocks whose share in mutual fund holdings has consistently risen over the past four quarters. Of the 492 companies for which shareholding data was available, 84 stocks passed this primary filter.
2.To ascertain that stocks qualifying for this study enjoyed a broad-based interest from mutual funds, we picked only those stocks in which mutual fund holding was at least 5% of the company’s total share capital, and those that were held by at least 20 equity schemes as of September 2024.
3.For the latter, we considered only diversified equity schemes and excluded all sectoral, thematic and hybrid schemes. This left us with 33 stocks.
4.These were further screened for a healthy return profile—boasting an average return on equity (RoE) of more than 15% over the past three years. The list was now down to 15 stocks.
5.We further weeded out stocks that are trading at exorbitant valuations, have deteriorating return profile, and have a higher proportion of sell recommendations by analysts. This led us to a final list of the six most sought-after stocks among mutual funds.
MPHASIS
Steady recovery in discretionary spending is likely to put Mphasis on a strong footing. Deal wins for the IT services company remain soft owing to delays in decision-making amid greater scrutiny of deals by clients. However, faster conversion of total contract value (TCV) to revenues indicates a return of discretionary spending, shortcycle deals, and project scope expansions. Unexecuted TCV remains high, providing confidence going forward. It sees stability in all key verticals and geographies, continuing trend of green shoots across the client portfolio. The company indicated that BFS continues to see a recovery in discretionary spending, and the momentum is likely to pick up as monetary policy eases further. It has also highlighted a recovery in its top clients and the US mortgage market. The company has seen a higher share of proactive deal wins, broad-based wins across verticals and client pyramid. Its focus is now marginally shifting away from the cost takeout deals to transformation and modernisation projects. Generative AI deals now form 35% of its pipeline.
“While some signs of improvement are emerging, we are waiting for further clarity on TCV trends, client stability, and the US mortgage recovery before revisiting our position.”
MOTILAL OSWAL
Riding transformation wave amid uptick in discretionary spending
Top 5 funds holding Mphasis
Analyst recommendations
INDUS TOWERS
Indus Towers’s performance in the recent quarter was heartening, with stable net tenancy additions and strong cash collection. Tenancy addition has been better compared to towers, possibly aided by Vodafone-Idea/BSNL site rollout. The ongoing travails of Vodafone-Idea has been an overhang on the stock. However, Vi’s recent fund-raising and upcoming network rollout is materially positive for Indus. The company was able to collect prior period dues for the fourth successive quarter, which led to the reversal of a chunk of its bad debt provisions. The management remains engaged with Vi for swift clearance of overdues and to ensure timely payments. It also expects rising urban presence and large rollouts in the past few years to help Indus win a high share in Vi’s upcoming rollouts. Indus has also seen a rise in rental per tenant, reflecting the benefit of rising 5G loading and lower drag from renewals. The management has reiterated that its dividend policy remains linked to free cash-flow generation, so it will take a call on reinstating dividends at the end of the financial year, based on FCF.
“Investors are encouraged to view any weakness in share price as a buying opportunity.”
CITI
Better prospects amid network rollouts and recovery of dues
Top 5 funds holding Indus Towers
Analyst recommendations
CYIENT
Cyient provides IT solutions focused on engineering, manufacturing, data analytics, networks and operations. It has put on a tepid show in the past two quarters, but analysts remain confident of a recovery in the second half of this financial year. Amid a challenging environment, the company recorded five large deal wins in the September quarter, indicating stable order intake. The management is confident of improving margins in the medium term, supported by growth leverage and operational efficiency. Its strategic focus on newer growth areas, particularly the semiconductor business, is encouraging. This segment is said to be at an inflection point, with Cyient making strong and continued progress towards unlocking its potential. A subsidiary has been established to implement turnkey projects for the semicon business, which will serve as the next growth engine. Analysts believe that order execution in the coming quarters will be crucial to watch for Cyient to meet its growth targets. Benign valuations and exposure to structurally strong verticals, such as aerospace, and sustainability are positives for the stock.
“With its alignment to the right verticals and exposure to high-growth sectors, Cyient has the potential to return to a double-digit growth rate over the medium term.”
MOTILAL OSWAL
Boost from strategic focus on high-growth vectors
Top 5 funds holding Cyient
Analyst recommendations
ITC
ITC continues to put on a strong show across its diversified businesses. In the September quarter, the company delivered a healthy revenue growth of 16.8% y-o-y, driven by impressive performance in agribusiness and the hotels segment. Volume growth in its core cigarettes business remains stable, led by differentiated and premium offerings. The FMCG business is showing resilience despite subdued demand, high inflation and unseasonal rains. FMCG continues to enjoy industry-leading growth over peers due to ITC’s category presence (large unorganised mix, underpenetrated). The paperboard business remains subdued by cheap Chinese imports, weak domestic demand and rising wood prices. In hotels, over the past 24 months, 30 properties have been added to ITC’s portfolio, with plans to add 28 more in the next 24 months. The demerger of the hotel business will strengthen ITC’s balance sheet and improve its return ratios. The company’s gross margins have been under pressure due to poor mix (higher share of low-margin agri portfolio) and higher raw material price (leaf and wood). However, better capital efficiency is expected to improve operating cash flow, leading to a healthy sustainable dividend yield of 3-4%. Also, the reasonable valuations provide a margin of safety.
“We believe ITC’s long-term growth outlook remains intact. Valuations of other larger players stand elevated, which makes ITC a better play on a long-term basis.”
AXIS SECURITIES
All-round show to help continue the momentum
Top 5 funds holding ITC
Analyst recommendations
POWER GRID CORPORATION
Power Grid Corporation is likely to be a key beneficiary of the transmission capex upcycle. It will be a big player in the government’s ambitious National Electricity Plan, which aims to expand and strengthen the transmission infrastructure across the country. At an outlay of `9.2 lakh crore, the plan indicates a significant commitment to capacity expansion and the promotion of clean energy technologies. It aims to meet a peak demand of 458 GW by 2032 and expand the transmission network to 0.648 m circuit km (ckm) by 2032 from 0.485 m ckm in 2024. Further, the transformation capacity is likely to rise from 1,251 GVA to 2,342 GVA over the period. Power Grid’s own financials continue to exhibit strength. Its last four quarter order book-to-sales ratio has inched up sharply to 2.5x, providing visibility in revenue for the next few years. It was recently named successful bidder for the development of a mega interstate transmission system grid involving high voltage direct current (HVDC) technology. In terms of capital outlay, this scheme is believed to be historically the biggest ISTS-TBCB scheme at `25,000 crore. With a dividend yield highest among peers and reasonable valuations, analysts remain positive about the stock.
“With the Central government adjusting its transmission capex estimate to `9.2 lakh crore, Power Grid is strategically positioned to capitalise on these investments.”
MOTILAL OSWAL
Direct play on transmission capex upcycle
Top 5 funds holding Power Grid Corpn
Analyst recommendations
LARSEN & TOUBRO
L&T has underperformed its listed peers for the past six months on concerns related to weaker-than-expected domestic and international orders. However, analysts remain positive about its long-term prospects. Its lifetime high order book provides a healthy revenue visibility over the next two years. Order prospects in the domestic and international markets remain healthy at Rs.9.07 lakh crore. The domestic order intake is expected to see an uptick during October 2024-March 2025 on a pick-up in government-led investments after the state elections.
L&T is also expected to benefit from a healthy order intake from the international segment, led by the Middle East. However, current weakness in crude oil poses possible risk for Saudi order inflows in the near term. Over the past two years, L&T’s margins have been impacted by legacy projects and sharp fluctuations in commodity prices. With expected completion of legacy projects and stable input prices, margins are likely to start inching up in the next few quarters. With constant reduction in working capital, the company has managed to improve core business RoE over the past three years.
“L&T remains at the forefront to reap benefits from the Atmanirbhar Bharat scheme with its diversified businesses and is the best proxy for domestic capex.”
SHAREKHAN
Good long-term prospects due to healthy order book
Top 5 funds holding Larsen & Toubro
Analyst recommendations
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This story originally appeared on: India Times - Author:Faqs of Insurances
