4 PSUs and 1 PSU Bank among 39 stocks to buy amid FII sell-off, says JM Financial

Amid a relentless which has now eased a bit as per analysts with the total FII outflow at a staggering Rs 34,348 crore, JM Financial in its report dated November 18 stated that Nifty50 is down now nearly 11 per cent from its peak.

Amid it of the brokerage's coverage universe, 21 per cent of stocks in the JM Financial coverage universe have fallen more than 30 per cent, 55 per cent of stocks have fallen > 20% and 72 per cent  of the stocks have fallen more than 15%.

We expect a pick-up in government capex and rural demand in 2HFY25. Further, with continued SIP flows and hopefully a slowdown in FII outflows in the near future, it might not be a bad time to start analysing stocks that have fallen steeply from their 52-week highs.

The domestic brokerage underscored that thehe sell-off in Indian equities started as a “Sell India, Buy China” trade post the Chinese government announcing stimulus measures for the economy in Sep’24. FIIs preferred
moving to China (trading at less than half of India’s valuations. India’s 1-year forward P/E through Jul’24 to Sep’24 was > 1 standard deviation above mean). Consequently, China saw FII inflows of USD 96bn in Sep’24.

Also, the drag has come in amid concerns of Indian listed companies missing on their Q2FY25 earnings estimates. 

And amid this, JM Financial inferred that 66 per cent  companies saw EPS cuts for FY25, 45 per cent of the companies saw cuts in target price post Q2FY25 and furthernore for FY25, a larger per cent of small and midcaps (SMIDs) witnessed EPS cuts (>0%, 3%, 5% and 10%) and larger % of small and midcap (SMIDs) saw > 10 per cent EPS cuts.

Moreover, there is a view that the FII outflow may continue and they may be compelled to further take off some of the money from the table again to the US. 

"We believe Trump’s plans for lower corporate taxes, higher import tariffs,and deportation of illegal immigrants will result in growth in the US economy, higher inflation, higher interest rates and a stronger US dollar. This might tempt FIIs to take at least some portion of their money to the US," added the report.

So, after the correction the brokerage remains bullish on the India's structural growth story amid 5 factors such as:

(1) India is one of the fastest growing economies in the world;

(2)India’s GFCF as a percentage of nominal GDP has risen for 4 years in succession. It is expected to hit 31.5% in FY25 (highest at 35.8% in FY08);

(3) India and China will be the largest manufacturing hubs of the world by 2030

(4) India has its largest ever adolescent and youth population. It will continue to have one of the youngest populations in the world till 2030;

(5) The Indian markets are supported by domestic capital flows, with SIP flows of INR 253bn in Oct’24.

Stocks the brokerage mentions in its 'buy' list and that have corrected up to 61 per cent from their 52-week high:

Largecap stocks: ONGC, Cholamandalam Investment, Samvardhana Motherson, Shriram Transport, Havells India, Reliance Industries, DLF, Maruti Suzuki, Polycab, JSPL,, Bank of Baroda, Hindalco, Bharat Electronics,and  Axis Bank.

Midcap stocks: Supreme Industries, Oil India, Suzlon Energy, BHEL, Global Health, Gujarat Gas, KEI, Metro Brands, Deepak Nitrite and Marico

Smallcap stocks: Zee, H.G. Infra, PCBL, Ahluwalia Contracts, Cyient DLM, Gokaldas Exports, Star Health, Lemon Tree, SAMHI Hotels, PNB Housing, CMS Info Systems, Balrampur Chini, Bikaji Foods, Techno Electric and Aadhar Housing Finance.