E-PaperNifty 50 can add 1,200 points in June, says Nirmal Bang; lists 2 technical and 2 fundamental stock picks
Indian market underperformed in May, while Nifty may add 1200 points in June. Market recovered after initial decline post-election. Budget focus expected in latter June. Market may soften due to June quarter results and slower growth indicators.
Last month (in May), the Indian market underperformed most of the world markets mainly driven by a sell-off by FIIs before the large event. Most of the international markets have gained 3-4 percent in the last month versus India remaining flat, down 0.3 percent.
However, in a recent note, brokerage house Nirmal Bang pointed out that the benchmark Nifty achieved 22,000 last June and since then the market has been consolidating, the brokerage feels the possible breakout can add 1200 points to Nifty in June.
Till now the Nifty has already risen around 800 points, over 3.5 percent this month. After an almost 6 percent decline in the first session of the month, June 3, on the back of a tighter-than-expected election race; the benchmark recovered robustly, giving positive returns in the next 4 sessions so far.
This is because the favourable result of the Modi-led NDA forming the government for the third straight term will lead investors to think for the next 5 years and leave aside near-term over-valuations.
However, in the latter part of June, the brokerage believes the focus will shift to the Budget wherein the government has received a bonus from RBI in the form of a Dividend of ₹2,11,000 crore which will support the budget for higher capital spending and lowering the fiscal deficit.
"We may see some softness in the market towards the later part of June month as the market will start factoring in June quarter results. The June quarter results are likely to be soft on account of slowdown in activity due to election and extreme heat waves," it said.
Moreover, it added that with sticky inflation the rate cut cycle got postponed from June to November in the US but corporate results for the March quarter were strong and ahead of expectations, that supported the market and took it to a newer high. But now the initial signs of softer growth are emerging with lower consumer spend. Quite a few companies have indicated about slower growth in the coming period, further stated by the brokerage.
Amid this backdrop, Nirmal Bang has come out with 2 fundamental and 2 technical stock picks for the current month. Let's take a look:
Fundamental Stocks
Sanghvi Movers: The brokerage has a target price of ₹1,750 for the stock, implying an upside potential of 56 percent.
Sanghvi Movers, Asia's largest and the world's sixth-largest crane rental company, operates a fleet of 346 cranes ranging from 40 to 1000 MT. It holds a 40-45 percent share in India's crane rental market and a dominant 60-65 percent in the high-end segment (400 MT and above). Wind installation growth has boosted Sanghvi's order book, which has grown at a CAGR of 34 percent over the past three years, from ₹236 crore in FY22 to ₹426 crore in FY24.
The company is also expanding into EPC work for wind farm installation, aiming to increase its EPC revenue tenfold to ₹250 crore in FY25. With a strong balance sheet and cash flow, Sanghvi targets a 24 percent CAGR in earnings over FY 24-26, valuing the stock at 14x FY26E EV/EBITDA for a target price of ₹1750, said the brokerage.
Varroc Engineering: The brokerage has a target price of ₹690 for the stock, implying an upside potential of over 18 percent.
Varroc Engineering Ltd (VEL) is an auto component company, with over 75 percent of its revenue from 2 and 3-wheelers. VEL earns 82 percent of its revenue from India, with Bajaj Auto as its major customer, accounting for 42 percent. The company secured ₹8700 crore in lifetime orders in FY24, a 68 percent increase from FY23. VEL is poised to benefit from growth in the 2W segment, supported by six new launches from Bajaj Auto in early FY25.
The company's net debt has also significantly decreased from ₹2250 crore in FY21 to ₹982 crore in FY24, with an expected further reduction to ₹300 crore in the next two years. Nirmal Bang anticipates VEL's revenue and EBITDA to grow at a CAGR of 13 percent and 23 percent respectively between FY23-26, with ROE improving to 23 percent by FY26. Trading at 15x FY26 EPS and 8.2x EV/EBITDA, VEL is undervalued, it noted.
Nifty Technical Outlook
According to the brokerage, a decisive close above 22,800 for two consecutive trading sessions could potentially trigger a fresh upward rally towards 23,600/24,000 levels.
However, on the downside, the Nifty has strong support at 22,390, its 50-Day Moving Average (DMA). A failure to hold above this level on a closing basis could trigger further selling pressure, potentially dragging the Nifty down to the 22,000-21,800 level, it noted.
Also, the daily momentum indicator, RSI, shows strength, hinting at a potential near-term uptrend. Traders should avoid aggressive short positions and consider buying opportunities on dips, as these could strengthen the Nifty, suggested the brokerage.
Technical stocks
GAIL: The brokerage recommends 'BUY GAIL above 202.40, ADD on dips at 192 for a Target of ₹238 with a strict stop loss of ₹184'
As per Nirmal Bang, the stock is well placed above all the important moving averages on a closing basis and the stock is continuously taking support of 20 DMA & 50 DMA. Technically, the Weekly chart suggests that the stock is in an upward-rising channel suggesting a potential up move in the near term. An interesting fact is that its price is rising along with decent volume indicating strength. Directional indicator ADX is showing strength, it added.
UBL: The brokerage recommends 'UBL BUY above 1862, ADD on dips at 1830 for a Target of ₹2100 with a strict stop loss of ₹1770.'
According to Nirmal Bang, UBL has given a breakout of a downward-sloping trend line on the daily chart, indicating a potential up move in the coming month. It further stated that the stock is well placed above all the important moving averages & Bottom Fishing is seen at 100 DMA. Momentum Indicators such as RSI are showing a positive crossover, it added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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