After Sensex, Nifty's Santa rally today, these banks and pharma stocks may give returns up to 7-25% - what should investors do?

Nifty50, Sensex Gainers, Losers: The Indian markets witnessed a Santa rally on Monday as both the benchmark indices – Nifty50 and BSE Sensex – snapped a four-day losing streak to end over 1 per cent higher and above key levels of 18000 and 60500, led by banking, metal, and financial stocks.

At the market close, the BSE Sensex was up 721.13 points or 1.20 per cent to 60,566.42, and Nifty50 was up 207.80 points or 1.17 per cent to 18,014.60 levels on Monday. Broader markets such as Nifty Mid and Small cap outperformed the benchmarks to end in the range of 2-4 per cent today.

According to Parth Nyati, Founder at Tradingo. “Indian markets witnessed a sharp short-covering rally in the absence of any global cues. Last week, we underperformed due to COVID-related news, while other global markets didn't react too much to the same.”

He added domestic market had become oversold as the Nifty daily RSI was near 30 and the put/call ratio was 0.72; therefore, we are seeing a short-covering bounce. The purchase of 3400 cr by DIIs without any block deal was another encouraging sign for bulls. Nyati further said.

Most of the froth was removed from the system in Friday's trading as many stocks fell precipitously, resulting in bargain buying at lower levels, as per the market analyst.

Below is the list of the top three large-cap stocks that have been gainers/losers during today's session

State Bank of India (SBI): Buy – Target: Rs 750; Upside: 25%

Shares of India’s largest lender SBI on Monday closed as top Nifty50 gainer. The stock jumped over 4 per cent to Rs 597.10 per share on the NSE against a 1.17 per cent rise in the Nifty50.

SBI, after getting impacted by corporate NPAs, has reported a consistent improvement in business growth as well as asset quality, as per Kajal Gandhi, Research Analyst, ICICI Securities. She added that the accelerated growth, steady margins, and lower credit cost are expected to drive RoA further.

Thus, the stock, long due for re-rating, should see strong positive momentum, Gandhi noted, retaining a BUY rating on the stock with a revised target price of 750 per share from Rs 700 earlier and value the bank at ~1.25x FY25E ABV and subsidiaries at Rs 183/share.

IndusInd Bank: Buy – Target: Rs 1350; Upside: 13%

Shares of IndusInd Bank closed as top Sensex gainer on Monday. The stock surged nearly 4 per cent to Rs 1,193.3 per share on the BSE as compared to over 1 per cent rise in the S&P BSE Sensex.

IndusInd Bank’s share price has gained around 2 times in the past two years and structural levers - robust business growth, an uptick in NIM (net interest margin), and moderation in provision are seen enabling the bank to generate RoA of 1.6-1.7 per cent in FY23-25E, an analyst at ICICI Securities said.

“We retain our BUY rating on the stock, valuing the bank at around 1.65x FY25E ABV and revised target price from Rs 1350 per share to Rs 1450 per share earlier,” Gandhi said in its report on the bank.

Cipla: Neutral – Target: Rs 1,180; Upside: 7.5%

Shares of Cipla, which were buzzing last week, ended as the top Nifty loser. The stock slipped nearly 2 per cent to Rs 1,097.95 per share on the NSE.

Cipla is expanding product offerings and recalibrating the positioning of products into Prescription, Trade Generics, and Consumer Healthcare categories in India, Tushar Manudhane, Research Analyst, Motilal Oswal said in its report on the drug maker.

Product development and approvals remain on track for differentiated launches in US Generics, which will drive growth till FY25, Manudhane said. “We expect 18 per cent earning CAGR over FY22-24, led by 5/22 per cent sales CAGR in the India/US segment and 240bp margin expansion.”

The analyst value Cipla at 23x 12-months forward earnings to arrive at a target price of Rs 1,180 per share, while maintaining Neutral stance, given the limited upside from current levels.