Budget Top picks of Sharekhan

Top 11 stocks ahead of Budget 2013 by Sharekhan

Markets continued to move in a narrow range as "better than expected results failed to push it beyond 6100 level on Nifty," Sharekhan has said.

: The market continued to move in a fairly narrow range in the first month of calendar year 2013 as "better than expected results in the initial part of the result season, positive global cues and monetary easing failed to push it beyond the 6100 level on the Nifty," Sharekhan has said in a report.

The foreign investors continue to keep faith in the Indian market, but the persistent selling by the domestic investors seems to be putting pressure on the market. "Consequently, the market has been largely flat since our last update on January 1, 2013," says Sharekhan in its monthly report on portfolio stocks.

However with the important event of Union Budget ahead, Sharekhan is making three changes in its Top Picks basket this month. As part of the churn in the pharmaceutical sector, the brokerage firm is replacing Dishman Pharma with a more stable and front-line company Sun Pharmaceuticals.

Given the government's focus on reforms in the oil & gas sector, the brokerage firm is introducing Oil IndiaBSE -0.73 % in place of Bharat Heavy Eelectricals, which is struggling to procure fresh orders due to tough conditions in the power generation sector.

Lastly, Sharekhan feels that it is better to avoid Mahindra and Mahindra (M&M) before the Union Budget as the noises related to a higher tax on diesel vehicles are getting louder.

Moreover, the move to reduce diesel under-recoveries by regularly hiking the retail price of diesel would also affect sentiments for M&M due to the company's dependence on the diesel-powered portfolio of automobiles.

Taking above factors into consideration, the brokerage firm is introducing United Phosphorous in place of M&M due to the latter's strong performance in Q3FY2013 and attractive valuation.

Here is a list of top eleven stocks for the month of February:

CanFin Homes Ltd: Target price Rs 220

The company has renewed its focus on growth and the recent aggressive expansion of its branch network has put it on a high-growth path for the next few years. It has added 26 branches since March 2011, which amounts to an increase of close to 60 per cent in its current branch network of 67 outlets. Sharekhan expects the company's disbursement to grow at about 60 per cent CAGR, resulting in a 38 per cent CAGR in the loan book over FY2012-14.

Further, the company gets refinancing from the National Housing Board at competitive rates due to lending in semi-urban rural areas (that account for about 40 per cent of its loan book). Thus, Sharekhan expects CanFin's NIM to sustain at over 3 per cent going ahead.

The asset quality of the company is strong as its gross NPAs were under 1 per cent of the advances and its net NPAs were nil in FY2012. This is mainly possible due to stringent credit appraisals (customer referrals preferred) and efficient recoveries.

The brokerage firm believes the operational performance and return ratios of CanFinBSE -3.89 % are improving which should lead to a rerating of the stock. Sharekhan continues to value the company at 1x FY2014E BV and recommends 'buy' with a price target of Rs 220.