Look for value stocks in the year 2015, say experts; top stock picks ::ET

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 The Indian markets might have rallied nearly 30 per cent so far in the year 2014, but there are many small and midcap stocks which have more than doubled in the same period.

Most of the mid and small cap stocks have rallied largely on account of reform push by the Modi government, but the rally is not over yet, say experts, adding that retail investors can outperform benchmark indices by investing in value stocks over a period of 3-5 years.

"Investors have started to believe in the concept of value investing. However, this concept in India is yet to have a firm footing. Only 5% to 6% investors are value investors," says Nimesh Shah, MD & CEO, ICICI Pru AMC.

"Value would be in some midcaps which we believe can grow much faster than the broader market. There is a concept that the ROEs of companies today are much lesser though value," he says.

"We are in the beginning of a bull market where 2015, according to us, is going to be a very interesting year - it is an investment year," Shah adds. When there is a bubble in the market, investors can look at value funds which are relatively cheaper at that time.

The Indian markets had an eventful year with benchmark indices surging nearly 30 per cent. Given the reforms measures such as passing ordinances and thrust on 'Make in India' to boost the manufacturing sector, the next year is expected to be as good.

"This seems to be the start of a golden era, not just for the markets, but also the Indian economy. Many factors have fallen into place for the Indian markets and the economy. India is the only major country that is projected to see a pickup in growth momentum," said Kamlesh Rao, CEO, Kotak Securities.

In the year 2015, India is likely to further build on the strong base of year 2014. Economic growth is expected to improve by as much as 150-200 bps over a two-year period FY2014-2016 on a low base of close to 4.5% in FY2014.

"The Reserve Bank of India is also expected to play its part by commencing the interest rate cut cycle sometime in the latter part of Q1 of 2015. Hopefully, the government would also be able to form political consensus and push through some important policy bills in the Parliament, like amendments to the Land Acquisition Act, Goods & Services Tax, and Insurance Bill, among others," says Gaurav Dua, Head Research, Sharekhan Limited.

"Though the Year 2015 could see higher level of volatility (bouts of risk aversion globally), we expect the overall uptrend in the equity markets to remain intact," he adds.

The benchmark indices are trading at 11-12x FY2017 earnings, which is way below average valuation multiple of 15x (and tend to bottom out at 10x) and leaves enough scope for upside in response to improving trajectory of growth in corporate earnings and supportive domestic macro environment.

"Nifty/Sensex, the benchmark indices, have not corrected by even 10% on any single occasion since the last 15 months and the trend is likely to continue in spite of the expectations of higher volatility in 2015," he adds.

We have collated a list of value stocks from various experts for the year 2015:



Hemang Jani, Senior Vice President, Sharekhan

We retain our preference for autos, auto ancillaries and financials for 2015 as these sectors tend to be early beneficiaries of the economic revival. We also prefer some urban discretionary spending companies along with quality cyclical and a few bottom-up picks.

Our large-cap picks are: Ashok Leyland, Hero Motocorp, ICICI Bank, Bharat Electronics, and Larsen & Toubro.

In mid-caps, we prefer Gateway Distriparks, Gabriel India, Century Plyboards, PTC India Financial Services, DCM Limited.



Gaurang Shah, VP, Geojit BNP Paribas Financial Services

We do believe there is a lot of value in the IT space. Look at how Tech Mahindra has bounced back over time. So we believe that the corrections we are currently seeing are only investment opportunities.

We are positive on Infosys, TCS, HCL Tech, Tech Mahindra, Persistent System and MindTree in the large cap and midcap IT space. We would definitely advice some portfolio allocation at current levels.

Pradeep Gupta, Co-Founder and Vice-Chairman, Anand Rathi Financial Services

The positive outlook on Indian equities stays intact for the year 2015 as well. Directionally, we remain positive and firmly believe growth in corporate earnings will drive the markets fundamentally.

We are positive on Ahluwalia Contracts, Cera Sanitaryware, Finolex Cables Ltd, Persistent Systems Ltd, Wipro, Century Plywood Ltd, Setco Automotive, NRB Bearings and Ashok Leyland.



Dr Vikas V Gupta, Executive Vice President at ArthVeda Fund Management Pvt. Ltd

For 2015, we expect that the markets should definitely remain buoyant on the back of a strong potential improvement in fundamentals - in particular, recovering asset utilizations and strengthening EBIT margins - with a secondary boost from a possible re-rating in valuations.

We are positive on these ten stocks which have solid fundamentals and are fairly undervalued with respect to their intrinsic values. The list includes names like NMDC, Coal India, Wipro, Tata Motors, HCL Technologies, MOIL, Hindustan Zinc, Engineers India, MphasiS and GMDC.