ITC, Maruti, Vedanta Among CLSA’s Top Picks for 2017

STOCK TALK ITC, Maruti and Zee Entertainment offer good buying opportunity after an 8-12% fall since the demonetisation announcement, says the brokerage

Brokerage firm CLSA has picked shares of ITC, Maruti Suzuki India, Zee Entertainment, Power Grid Corporation of India and Vedanta as its top investment bets for 2017. ITC, Maruti and Zee offer a good buying opportunity after a 8-12% fall since November 8 amid fears over impact of demonetisation of higher denomination currency . CLSA said the impact of the government’s move is unlikely to last materially beyond the JanuaryMarch quarter.

ICICI Bank and Vedanta found their place in the top picks as they are seen benefiting from rising commodity prices, while Power Grid is being viewed favourably as it offers predictable earnings growth, said CLSA in a note. Here’s what makes them top picks for 2017:

ITC

(CMP: `235.30; YTD Return: 7.7%; PE: 28.09)

The fall in the stock in the last three months factors in risks related to demonetisation and GST rate uncertainty. Moreover, valuations are reasonable at 26 times one-year forward earnings, and cigarette volumes are likely to improve steadily, said CLSA.

Maruti Suzuki

(CMP: `5,160.85; YTD Return: 11.8%; PE: 25.75)

CLSA said the stock is the best largecap bet on discretionary consumption story. New products, normalisation of demand after a fall due to demonetisa tion and easing capacity constraints are likely to lead to a 12% volume CAGR over FY17-19.

Zee Entertainment

(CMP: `441.80 YTD Return: 1.1%; PE: 45.2)

CLSA estimates the company to post a 32% profit CAGR over FY17-19. It could benefit from upturn in advertising growth after the demonetisation impact is over, and revenue growth may rise as digitisation phase-III starts.

ICICI Bank

(CMP: Rs 264.75; YTD Return: 1.3%; PE: 17)

Valuation of the stock is 30-50% below peers and asset quality stress is likely to come down with key asset sales. A 19% rise in steel prices from 2016 lows can reduce stress in the steel sector, which has been a key area of concern for the bank.

Vedanta

(CMP: `240.45; YTD Return: 166.3%; PE: 16.4)

Raising its target price from `275 to `300, CLSA said the firm could deliver strong volume growth in the next two years due to ramp-up of its new aluminium and power capacities, and improved outlook for commodity prices.

Power Grid

(CMP: `184.65; YTD Return: 30.8%; PE: 14)

CLSA forecasts a 50% rise in the firm’s regulated equity during FY1619, which will accelerate earnings growth and reduce the risk of equity dilution. It looks inexpensive despite a sharp rally this year.