‘Bharath’ stocks to outrun Sensex: BNP Paribas

French brokerage BNP Paribas has said that a group of eight large domestic stocks, which it has called ‘Bharath’, has the potential to outperform the benchmark Sensex over the next year.

The stocks in this basket are Bharti Airtel, HDFC Bank (and HDFC Life), Asian Paints, Reliance Industries (RIL), Tata Consultancy Services (TCS), and Hindustan Unilever (HUL).

The brokerage said these firms could reach about a billion people. “We think such a reach enables them to withstand difficult business cycles and come out stronger as competition around them struggles. The companies within our coverage in the Bharath list offer a potential upside of 16.7 per cent, despite the recent rally,” said Amit Shah, head of India equity research, BNP Paribas.

The brokerage has Sensex target of 41,500, implying a 6per cent upside from current levels. “We have done a scenario analysis based on historical five-year average of next 12 months P/E (price-to-earnings) and P/BV (price-to-bookvalue) multiples. We now firmly believe the worst is behind us and are now steadily heading towards a recovery. Near term, the market might have run slightly ahead of its fundamentals, but we do not see a material downside from the current levels,” said Shah.

The bear-case scenario for the brokerage is the benchmark indices slipping 9 per cent from current levels, while the bullcase scenario offers about 10 per cent jump.

BNP said these companies are benefiting either through cost savings by the adoption of work from home or by higher revenue growth.

BNP said the Nifty returns over the past 18 years shows that the market has been getting narrower, with fewer stocks dominating returns.

When asked about whether the retail investor driven rally will sustain, Shah said this is a global phenomenon and is caused by lack of adequate returns in other asset classes.

“This might be one of the few times when retail investors could have the last laugh. It is unlikely that the plug is likely to be pulled unless there is a big shock in the system,” he said.