Kotak has identified stocks that show steep increases in earnings over the next two years and / or stocks that are trading at very low multiples. 15 stocks with the potential to yield 50-100% returns over the next 18 months and examine the drivers required for these returns. In most cases, these are a sharp rebound in earnings (select commodity stocks), a potential re-rating of multiples led by better than expected operating and financial performance (largely banking stocks) and potential positive catalysts (RIL).
The earnings of several commodity stocks led by improved global demand for global commodities on the back of a global economic recovery, higher sales volumes from expansion by several Indian companies and improvements in balance sheets leading to lower interest expenses. The Picks are, Hindustan Zinc, Sterlite Industries, Reliance Industries, Tata Steel and United Phosphorous.
Banking & Finance:
The maximum scope for a re-rating of multiples in banking stocks given their currently low multiples (P/B or P/E). The low multiples reflect the market’s concerns about a potential steep increase in NPLs over the next 18 months led by the economic slowdown. The picks are – Punjab National Bank, Axis Bank, Federal Bank and IndiaInfo Line.
Reliance Infrastructure and Tata Power
DLF, IndiaBulls Real Estate and JaiPrakash Associates [If Mayawati is in the new Central Govt. expect good news for JP Associates]
These are the stocks that have the potential to yield high returns over the next two years according to Kotak Sec.