Stocks to buy: Bharat Electronics, Caplin Point among fundamental stock picks by HDFC Securities

The Indian stock market indices, Sensex and Nifty 50, are trading lower on Wednesday as investors opted for profit booking after the recent rally. Weak global market cues also dented sentiment in the domestic equities. The domestic market began 2024 on a high base and hence, analysts believe, it may be difficult to expect a similar performance by the time 2024 ends.

“However, the resurgence of FPI buying and placement of India as an attractive market, despite the seeming high valuations, may help our markets register some more gains in the early part of the year," said Dhiraj Relli, MD & CEO at HDFC Securities. Later, he believes, we may have bouts of volatility due to elections, timing and quantum of rate cuts, and valuation concerns.

Meanwhile, HDFC Securities’ Retail Research has come out with three fundamental stock picks with decent upside potential for a time horizon of two to three quarters. The brokerage suggests buying , Caplin Point Laboratories and Spandana Sphoorty Financial at current market price and also add on dips.

Here are three fundamental stocks to buy from HDFC Securities. Bharat Electronics | Buy | TP: 202 Bharat Electronics (BEL), one of India’s largest defence PSUs, is emerging as a key beneficiary of increase in defence capital expenditure. Government ownership leads to a sizeable inflow of orders on a nomination basis and large defence offset requirements of foreign suppliers provide opportunities for business growth over the medium term.

“BEL’s established track record, large manufacturing capacities, strong R&D base, robust order book with healthy order prospects and strong financial profile led by zero debt, attractive return ratios and better profitability makes us positive towards the stock," said HDFC Securities. It feels investors can buy the stock in the 182 186 band and add more on dips to 165 169 band (26x Dec’25E EPS) for the base target of 202 (31.5x Dec’25E EPS) and bull case target of 218 (34x Dec’25E EPS EPS) over the next three to four quarters.

Caplin Point Laboratories | Buy | TP: 1,492.5 Caplin reported strong earnings for the first half of FY24 and continues to remain on a growth path by entering new regions and adding new segments. The company is expected to post healthy growth on the back of a ramp up in US business (Caplin Steriles) and expanding its reach in the large markets of Latin America.

A strong filing pipeline of 55 ANDAs in the next three years could boost the US business. HDFC Securities estimates the company’s Revenue, EBITDA and PAT to grow at 16%, 19% and 15.5% CAGR respectively, over FY23 26E. “We feel investors can buy Caplin Point Laboratories in the band of 1,352 1,373 and add more on declines to 1,216 (16.5x Dec’25E EPS) for base case target of 1,492.5 (20.25x Dec’25E EPS) and bull case target of 1,585 (21.5x Dec’25E EPS) over the next 2 3 quarters," said the brokerage firm.

Spandana Sphoorty Financial | Buy | TP: 1,242 Spandana Sphoorty Financial aims to achieve assets under management (AUM) of 15,000 cr by FY25 and 24,500 cr by FY28. Modest credit costs and improvement in cost to income ratio is likely to result in higher profitability and expansion of return ratios, according to HDFC Securities.

It expects advances of the company to increase at 29% CAGR over FY23 FY26E after a strong growth of 40% in FY23. Return ratios are likely to improve as the company has cleaned up its balance sheet and it focuses on growing its book and improving its yield. “The valuation of the stock has not moved up in line with the improved performance and guidance and with that of most of its peers.

We have valued the company at 1.95x Sep’25E ABV for a base case target of 1,242 and 2.1x Sep’25E ABV for a bull case target of 1,340 over next 2 quarters," said HDFC Securities. It suggests investors can buy the stock in the band of 1,120 1,145 and add on dips in 1,015 1,035 band. Livemint tops charts as the fastest growing news website in the world to know more.

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