The fiscal year ended on a strong note for the equity markets with all the sectors delivering positive returns. Axis Securities in a recent commentary said that it has made key changes to their top picks with the addition of SBI, Equitas SFB, ACC, Camlin Fine Science, and Minda Corp while they book profits in NOCIL, Manappuram, Endurance, Canfin Homes, and JK Lakshmi Cement.
Axis expects Mid cap, Small cap, and Large Cap Value to be the key themes for FY22. Generally, during periods of higher earnings growth, mid and small caps register strong earnings growth and outperform the large caps, it said. Value as a theme outperformed quality, growth and momentum by a very large margin and this trend is also likely to sustain as broader economic recovery aids such investment styles.
The brokerage has maintained December Nifty target at 17,200. The current expectations build for earnings doubling in the next 4 years translating to an earnings CAGR of ~18% which is quite significant, it added.
Axis believes that IT will continue to deliver good returns in FY22 also as tail winds for the sector continue to be robust. The metals and mining sector also saw a sharp increase in commodity prices and Steel was one of the best-performing commodities in FY21.
Focusing on Q4 earnings and as a commentary for FY22, Axis said that Q4 will be benefited from a low base but margins will be critical. IT and Metals will report one of the best earnings trends but it is quickly getting factored into the prices. Earnings for mid and small caps will be closely watched as they will set the tone for FY22.
According to the brokerage, the auto sector will be another critical sector as margin trends have been weak for the sector bellwether Maruti and Hero could also face similar challenges with further impact on account of inventory issues.
BFSI will still hold the key but the trends from large private banks like ICICI continue to remain very strong. Overall, Q4 should be a continued improvement on Q3 but operating performance will be very closely watched, the brokerage said.
Based on the above themes, Axis Securities recommends the following stocks: ICICI Bank, SBI, Equitas SFB, Federal Bank, Bharti Airtel, HCL Tech, Tech Mahindra, Varun Beverages, RelaxoFootwears, Amber Enterprises, Camlin Fine Science, Minda Industries, Steel Strip Wheels. Lupin & ACC Ltd.
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