Stocks to buy for long term: Pankaj Pandey of ICICI Securities recommends these 5 shares to buy, expects 22-54% upside

Stocks to buy for long term: Nifty 50, the benchmark index of the Indian stock market, has seen significant selling pressure of late. The index is now 10.5 per cent down from its all-time high of 26,277.35, reached on September 27 this year.

The Nifty 50 ended the previous session with a modest gain of 0.28 per cent, breaking its seven-session losing streak. Could this signal that the worst is over?

Pankaj Pandey, the head of research at ICICI Securities, observed that the intensity of selling has come down, so the incremental pain is less intense now. However, we need to see a follow-up of this to confirm that the worst is behind us.

Pandey pointed out that for the Nifty 50 to reclaim the 26,000 mark, healthy December-quarter (Q3) earnings and increased news flow regarding ordering and tendering would be crucial.

“The second quarter (Q2) was exceptionally weak due to the convergence of multiple factors. However, the third quarter (Q3) is anticipated to show significant improvement. If Q3 delivers strong results and, after the state elections, news begins to emerge regarding ordering and tendering, it could further boost confidence. That is when it could be possible for the Nifty 50 to touch those kinds of levels,” said Pandey.

Foreign portfolio investors (FPIs) have been offloading Indian equities since October. Historically, FPIs tend to sell emerging market stocks as the year-end holiday season approaches. However, Pandey is optimistic that this trend could ease in the near future.

“This was a special year because of the US election, and we are seeing some anticipated changes. If you look at the US debt market prior to the election outcome, the debt market had started factoring in higher spending, which is why the 10-year bond yields rose. So, the FPI trend has more to do with the election outcome than the usual year-end activity. I doubt FPIs will continue selling heavily in December because India’s macros have not gone so bad,” said Pandey.

Pandey advises buying quality stocks at this juncture for the long term. He recommends the following five stocks to buy for the next one year. Take a look:

Natco Pharma | Previous close: ₹1,364.65 | Target price: ₹1,680 | Upside potential: 23%

Natco specialises in manufacturing complex generic products with few competitors, especially for the US market. India formulations mainly comprise oncology products (39 brands).

“Our estimates suggest that the company generated almost ₹3,500 crore in sales from generic Revlimid during FY22-FY24, and over the next two fiscal, i.e. FY25 and FY26, the company is expected to generate another about ₹5,000 crore,” said Pandey.

Natco is banking on some new FTF opportunities for its growth, notably gOzempic (Anti-diabetic), gWegovy (Weight management) and gLynparza (Anti-cancer), among others.

“Our target price is ₹1,680 based on 18 times FY26E base business EPS (earnings per share) of ₹87.2 plus ₹110 NPV for gRevlimid,” Pandey said.

Bank of Baroda | Previous close: ₹237.20 | Target price: ₹300 | Upside potential: 26.5%

Bank of Baroda is the third largest public sector bank with a meaningful presence in both domestic and international operations.

Consistent improvement in margins, profitability and asset quality has led to an increase in RoA (return on assets) in the last four fiscal.

Industry in-line credit growth (at 12-14 per cent) with a focus on diversified asset mix, healthy liabilities franchise (CASA at about 39.8 per cent), steady margins (about 3 – 3.2 per cent) and stable asset quality is expected to enable the bank to deliver consistent RoA at 1-1.1 per cent.

“Given valuation at historical average, we have a buy rating with a target of ₹300, valuing the bank at nearly one time FY27E ABV (adjusted book value),” said Pandey.

Larsen & Toubro (L&T) | Previous close: ₹3,505.90 | Target price: ₹4,260 | Upside potential: 22%

The company has a current order backlog of ₹5,10,402 crore, up 13 per cent year-on-year (YoY).

The execution trends of Q2FY25, especially in infra, hydrocarbon and precision engineering space, clearly indicated execution momentum, which will help the company easily meet its revenue guidance.

Given the prospects of ₹8.1 lakh crore, L&T expects to meet order inflow growth guidance for FY25E.

“Overall, we expect revenues and PAT to grow at CAGR of 14.7 per cent and 15.1 per cent over FY24-FY26E. L&T has reached an ROE (return on equity) of about 16 per cent and anticipates the same to reach 18 per cent as per their strategic plan,” Pandey said.

“The company is banking on an improvement of 1 per cent each from three catalysts like (a) Breakeven of Hyderabad Metro, (b) Improvement in P&M segment margins, and (c) increasing payouts in forms of higher dividends or buyback. We value the stock on a SOTP basis,” said Pandey.

PCBL | Previous close: ₹390 | Target price: ₹600 | Upside potential: 54%

PCBL is a leading manufacturer of carbon black, which is used as a reinforcing material in tyres.

PCBL also derives about 11 per cent of its volume from speciality carbon black, which fetches high margins and is used in paints and plastics.

It has a healthy margin profile (nearly 16 per cent) and a capital-efficient business model.

“We hold a positive view on PCBL, driven by healthy underlying double-digit volume growth in carbon black space led by export demand, efficiencies and turnaround in sight at Aquapharm and big opportunity in sight in Nano Silica. We have a buy rating on PCBL with a target price of ₹600, valuing it at 24 times PE on FY27E,” said Pandey.

NCC | Previous close: ₹279.35 | Target price: ₹400 | Upside potential: 43%

NCC is a key beneficiary of the tailwinds in the buildings, roads, water, mining and electrical segments.

Given the strong order book visibility and improving balance sheet strength, it is poised for healthy growth ahead.

NCC has a standalone order book of ₹48,028 crore, 2.5 times TTM (trailing 12 months) book-to-bill.

The company has maintained its guidance of order booking of nearly ₹20,000 – ₹22,000 crore.

The topline growth guidance is nearly 15 per cent for FY25, implying accelerated execution in H2FY25 (second half of FY25).

“Given the robust orderbook, we expect healthy revenue CAGR of nearly 15 per cent over FY24- 27E to ₹28,022 crore. Healthy topline and operating profit growth coupled with stable finance costs are likely to drive about 25.5 per cent earnings CAGR over FY24-27E,” said Pandey.

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