SBI, Axis Bank & 10 other value picks from ICICI Securities as number of investable stocks drop

Stocks from capital-intensive sectors, cyclicals and value stocks are expected to do well as long as the investment, commodity and credit cycle continue to remain robust, an ICICI Securities report said. The brokerage has identified over a dozen stocks with ‘Buy’ ratings which it referred to as ‘value stocks’ while cautioning against value traps.

The stocks picked by ICICI Securities include the likes of ONGC, South Indian Bank, Coal India, Manappuram Finance, Gail (India), Karur Vysya Bank, Jindal Stainless, State Bank of India (SBI), Va Tech Wabag, PCBL, Jindal Steel, Kalpataru Projects and Axis Bank.

ICICI Securities has defined value strategy as picking stocks where the market is pessimistic about the growth prospects of a company to start with, while the fundamentals of the company remain robust amid improving near-term growth prospects.

In ICICI Securities’ opinion, the proportion of ‘investable value stocks’ within the top 1,000 universe has dropped sharply to 10% from 17% at the start of CY23. “Bulk of the stocks that fulfil the criteria are largely related to financials, fossil fuel energy and other materials,” the report said.

“As the broader market rally continues, the number of stocks with the minimum quality attribute of trailing RoE > 14% and trading at earnings yield > bond yield, has dropped from 171 to 104 within the universe of the top 1,000 stocks by market capitalisation. Out of 104 companies, 73% have private ownership while 27% have government ownership,” the report said.

The value strategy framework measures market pessimism by reverse engineering the current stock price using market implied long-term growth value (MILTGV) framework; earnings yield > bond yield and applying the asset approach of valuation in terms of P/B ratio, the report said.

A stock starts getting into the value zone once the MILTGV starts dipping below 40%.

ICICI Securities has valued stocks lower for various reasons related to uncertainty about their future fundamentals and the risk of buying into a ‘value trap’ always existing.

The brokerage has also picked four stocks under the non-rated category viz. Power Finance Corporation, NTPC, Power Grid and NHPC.

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