Stocks Showcasing Highest Resilience

Given the market downturns in recent times, it is expected that companies’ stocks will tumble and fall. However, there are certain stocks that have been able to withstand the persistent volatility. The article takes a closer look at the way the wind is flowing and picks out two stocks that investors can consider. 

Over the past few years, the Indian equity markets have performed fantastically. From the lows during the pandemic, Nifty 50 and Sensex have seen only one significant correction during the October 2021 to June 2022 period. There is a saying: “The markets take the stairs up and the elevator down,” but after the pandemic lows, the markets reacted oppositely, climbing up like an elevator and descending like the stairs. Now, it seems this trend has reversed and returned to the old norm. 

The month of October witnessed a massive sell-off by foreign portfolio investors, amounting to ₹114,445.89 crore in the cash market — the highest ever in a single month. Meanwhile, domestic institutional investors (DIIs) were net buyers, purchasing ₹107,254.68 crore. The FII sell-off continued in November, albeit at a slower pace, with net sales of ₹34,348.30 crore as of November 19, 2024. On the other hand, DIIs remained net buyers, with purchases of ₹31,636.77 crore of Indian equity in the same period. 

The sell-off began on September 27, and since then, benchmark indices have corrected by over 10 per cent. The reasons for this FII sell-off in the Indian markets include China’s stimulus measures, high valuations in the Indian markets, rising inflation reducing consumer spending, disappointing Q2FY25 earnings with slow profit growth and increasing U.S. treasury yields along with strengthening of the U.S. dollar. Amid a sharp market downturn there are stocks that have delivered positive returns compared to the negative returns of the benchmark indices. Below are the stocks that moved in the opposite direction of the indices. 

Here are two fairly valued stock picks from the above list: 

Motilal Oswal Financial Services Ltd. is a leading financial services provider in India. Its offerings include research-led broking, loans against securities, and distribution of third-party products like insurance and bonds. The company holds an 8.2 per cent market share in cash and 8.7 per cent in the future and option premium segments. The company, through its assets and private wealth management segment, caters to a diverse clientele, including corporates, institutions and high-net-worth individuals. MOFSL leverages its expertise to identify the right fund managers across asset classes, aiming for high-growth portfolios. This segment manages assets worth `2.8 lakh crore and recorded net sales of over ₹25,000 crore in the first half of FY25. 

Q2 Financials - MOFSL reported a 71.5 per cent YoY increase in revenue to ₹2,838 crore compared to ₹1,655 crore a year ago. The company’s profit after tax (PAT) grew 111 per cent YoY to ₹1,120 crore from ₹531 crore in Q2FY24. Meanwhile, the company’s EBITDA rose 98.4 per cent YoY to ₹1,816 crore. Its EBITDA margins improved significantly by 868 bps to 64 per cent. 

Valuation and Outlook - India’s cumulative household savings will rise from about USD 14 trillion in the last 25 years to USD 126 trillion in the next 25 years. The management identifies this mega trend of India’s economic growth and increased household participation in the equity markets as a key driver for their business. It believes this trend will continue to fuel MOFSL’s growth in the coming years, particularly in its wealth and asset management segments. 

MOFSL’s business segments witnessed robust growth in the first half of FY25. The management expects this momentum to continue, driven by favourable industry trends and the company’s strategic initiatives. MOFSL is actively investing in expanding its distribution network, enhancing its product offerings, and improving operational efficiency. These efforts are likely to contribute to revenue and profit growth in the coming years. The company’s cash volume and future and option premium market share for Q2FY25 stood at 7.9 per cent (up 85 bps YoY) and 9 per cent (up 150 bps YoY). 

The management anticipates continued market share gains in these segments, fuelled by a strong growth in client base and trading volumes. The asset and private wealth management segment is expected to benefit from new product launches and a focus on attracting high-net-worth clients. The company is trading at a trailing PE multiple of 15.7 times, while its 10-year median PE is 22.0. From a valuation perspective, the company appears fairly valued, considering the booming capital markets in India. 

Deepak Fertilisers and Petrochemicals Corporation Ltd. (DFPCL) is a prominent Indian manufacturer specialising in industrial chemicals and agricultural products, including fertilisers and crop nutrients. Established in 1979, the company has evolved into a multi-product conglomerate with a diverse portfolio that encompasses nitric acid, isopropyl alcohol, and various forms of ammonium nitrate. 

DFPCL operates several manufacturing facilities across India, strategically located in Taloja, Srikakulam, Panipat and Dahej, with a total production capacity nearing 3 million metric tonnes per annum. In addition to its core business in fertilisers, DFPCL plays a significant role in the mining sector through the production of technical ammonium nitrate (TAN), which is utilised both as an explosive in mining operations and as a fertiliser. 

Q2 Performance - DFPCL’s financial performance for Q2FY25 demonstrated notable improvements across key metrics. The company’s consolidated net profit surged by an impressive 237 per cent year-on-year, reaching ₹214 crore compared to ₹63.50 crore in the same quarter last year. The revenue from operations also saw an uptick, growing by 13.3 per cent year-on-year to ₹2,746.7 crore, up from ₹2,424.2 crore in Q2 FY24. The earnings before interest, tax, depreciation and amortisation (EBITDA) of the company increased significantly by 72.7 per cent, reaching ₹494.2 crore as compared to ₹286.1 crore last year. The company’s EBITDA margin expanded by 620 basis points to 18 per cent compared to 11.8 per cent last year. 

Valuation and Outlook - The management believes that the consolidated EBITDA margins of 18 per cent achieved in the recent quarters are sustainable going forward. However, they acknowledge there will always be some cyclicality involved. In the industrial chemicals segment, management anticipates stable and improving demand and margins for IPA, following the implementation of anti-dumping duty on Chinese imports for five years. DFPCL expects demand recovery in mining chemicals in Q3, supported by growth in coal, cement, and steel industries. The management is confident about the long-term growth potential of this segment, driven by India’s infrastructure development. In the crop nutrition business, the company’s focus on high-performing products is paying off. 

Favorable monsoon conditions in core markets have driven sales of specialty fertilisers like Croptek and Smartek. Campaigns for crops like cotton and sugar cane have boosted revenues. The company continues to focus on high-quality specialty fertilisers like Solutek for grapes and tomatoes. It is trading at a trailing PE multiple of 23.8, while its 10-year median PE is 13.4. From a valuation perspective, the company appears fairly valued.