Top 5 Bluechip Companies with Upside Potential. Should You Buy?

In the tumultuous realm of stock markets, where small-cap stocks are experiencing a meltdown, the focus has shifted to largecaps amid the chaos, that showcase unwavering stability and promising growth prospects.

These stocks, commonly known as bluechip companies, have weathered storms before and continue to navigate the volatile landscape with resilience and confidence.

In this article, we turn our attention to the top five companies from the Nifty 50 that are currently down over 10% in 2024.

Let's see why they are down and what they hold for the future.

#1 UPL

First on our list is UPL.

The company is engaged in the business of agrochemicals, industrial chemicals, chemical intermediates, speciality chemicals and production and sale of field crops and vegetable seeds.

UPL SAS is the no. 1 crop protection player in India with a market share of 13%. Through its agritech platform 'Nurture' it is connected to over 3 million registered farmers, 85,000 retailers and 25,000 dealers.

The stock is down 23% in 2024 after the company reported a loss for the December 2023 quarter. The company reported a consolidated loss of Rs 12.2 bn during the December 2023 quarter. Its net profit stood at Rs 10.9 billion (bn) during the corresponding quarter of the previous financial year.

Destocking continued to weigh down the global agrochemical market. Overall, prices remained stable quarter-on-quarter in the crop protection business but came off significantly compared to the high base of the previous year amid intense post-patent price competition.

The company's shares also fell after it was announced that Shriram Finance would replace UPL in the Nifty.

However, this is expected to be temporary. The management is optimistic about a progressively improved performance in the fourth quarter of FY24 and the first quarter of FY25.

It expects a normalised business performance from the second quarter of FY25. Its foremost priority is reducing debt.

UPL also has a pipeline of products worth US$ 8.5 bn across various stages of development and catering to different regions and crop combinations.

Based on the pipeline, it is confident of increasing its innovation rate from 14% to 24% by FY27 and achieving a 50% revenue contribution from differentiated and sustainable products within this timeframe.

To know more, check out UPL's financial factsheet and latest quarterly results.

#2 LTI Mindtree

Second, on our list is LTI Mindtree.

The company provides a wide range of IT services such as application development maintenance (ADM), enterprise solutions, infrastructure management services, testing, analytics & artificial intelligence.

It is the result of a merger between LT Infotech and Mindtree. In May 2022, LTI announced that it would merge with Mindtree through a scheme of amalgamation as approved by the respective boards of the companies.

The stock has experienced weakness this year and is down 17%. This has been on the back of integration challenges; senior management exits and near-term demand slowdown.

The company also reported weaker than expected results for the December 2023 quarter.

Its revenue rose 4.6% while net profit increased 17%. Operating margins expanded to 15.4% YoY but fell short of its expectations of exiting the fiscal year at 17-18%.

The growth was impacted by more furloughs than expected and a continued slowdown in discretionary spending. The management has indicated that growth in the March 2024 will mirror the December 2024 quarter due to persistent pressure on clients' spending.

The business environment for the IT industry continues to be challenging. Higher-than-expected US inflation and concerns about delayed interest rate cuts have already impacted client spending which continue further.

Due to this, the growth of the Indian IT sector is uncertain in the near future. However, the company has a few tailwinds.

The positives on the margin front for the company are falling attrition, lower employee headcount with a focus on improving utilisation and some gains as hybrid model continues.

The company's deal wins are also strong at US$ 1.5 bn higher by 15% sequentially with the deal pipeline too being robust. It's financials also stand strong.

LTI Mindtree's revenue has grown at a compounded annual growth rate (CAGR) of 45% while net profit has grown at a CAGR of 43%. Return on equity and return on capital employed also stand strong at 28.6% and 37.7%, respectively.

For more details, see the LTIMindTree company fact sheet and quarterly results.

#3 Asian Paints

Third, on our list is Asian Paints.

The company was established in 1942 and stands as India's largest paint company, renowned for its wide range of products including varnishes, enamels, and lacquers.

It operates in 15 countries with 26 production sites globally, serving customers across 60 nations under various brand names like Apcolite and SCIB.

However, recent concerns over heightened competition with Grasim Industries entering the decorative paints segment with its Birla Opus range have led to a correction in the stock price.

The stock is down 17% in 2024.

Grasim Industries has entered the paints sector with the much-anticipated launch of its Birla Opus range of products. This can reshape the dynamics of the sector by intensifying competition.

Through the launch of Birla Opus, Grasim aims to secure the second position in the decorative paints market, currently dominated by rival Asian Paints.

However, Asian Paints has strategically diversified into non-paint businesses over the past decade, offering a comprehensive home decor solution. The stock also stands to benefit from the demand from real estate which is expected to be robust in 2024.

The company's financials have stood the test of time. Asian Paints' revenue has grown at a CAGR of 20% in the last three years while net profit has grown at a CAGR of 15%.

Its return on equity stands strong at 27.7% while return on capital employed stands robust at 34.4%.

To know more about the company, check out the financial factsheet and the latest quarterly results.

#4 HDFC Bank

Fourth on our list is HDFC Bank.

HDFC Bank is the largest private sector bank in India with an extensive network of over 8,000 branches.

The lender has a high market share in most retail loan categories like unsecured retail, vehicles, and even in mortgages post its impending merger with HDFC Ltd.

In 2024, the stock of HDFC bank has fallen by 16%.

Key factors include a miss in net interest margins (NIM) due to increased fund costs, elevated provisions, and a decade-low growth in earnings per share (EPS) in Q3, collectively contributing to the downward trend in shares.

Investors are worried the bank would need to play the deposit pricing game to garner high volume of deposits, thus shrinking its margins and dampening profitability. Moreover, the anticipatory cut in repo rates has added to the pessimism.

However, while the short-term worries remain, the long-term story of the lending major remains intact.

Between 2019-2023, the bank's advances have grown around 2x in the last five years at a 5-year compounded annual growth rate (CAGR) of 18.9%.

The NPAs of the bank have also remained steady in the range of 0.3-0.4% from the financial year 2018, the lowest in the industry. This is quite admirable as it indicates the company hasn't taken any unnecessary risks to expand its business.

The company's net interest margin (NIM) has also been on the rise every year since 2018.

The bank's strong franchise, the huge synergies post the merger and the long runway for growth, makes it a good stock to keep on your watchlist.

To know more about the bank, check out its HDFC Bank financial factsheet and latest financial results.

#5 HUL

Last on our list is HUL.

Hindustan Unilever (HUL), part of the Unilever Group, stands as India's leading Fast Moving Consumer Goods (FMCG) company with a vast portfolio of over 44 brands spanning 14 diverse categories such as fabric solutions, home and hygiene, skin care, and foods.

Despite a stronghold in the market, the stock price has been volatile in the past year. At present, it is down 15% in 2024. This underperformance comes on the back of poor quarterly performance.

On a quarterly basis, the company reported a 0.5% dip in sales and a 5.6% dip in net profits. HUL faced challenges with negative realisations in its home care and beauty & personal care segments, falling below expectations. Rising input costs have also put pressure on the stock.

The increasing price of palm oil along with the robust performance of competing oils, hit shares of the company as it uses palm oil as a key raw material for its body wash and few food products.

However, HUL has recently announced a collaboration with the Andhra Pradesh government for palm oil production at investments exceeding Rs 3 bn. Localising palm oil production can potentially give the company enhanced cost efficiencies, lower forex volatility, and a more secure supply chain.

So, while the stock could experience pressure in the near term, in the long term it is expected to witness a recovery in both pricing and volume growth.

In a competitive landscape featuring multinational, domestic, and regional FMCG firms, HUL holds either the top spot or a strong second position in most categories it operates.

Its portfolio targets various market segments, including premium, mid-price, and economy, setting it apart from competitors focused solely on premium or mass markets.

To know more about the company, check out the financial factsheet and the latest quarterly results.

Conclusion

In conclusion, amidst the turbulence of the smallcap meltdown, the resilience and potential of top bluechip companies shine brightly.

As the smallcap segment experiences volatility, investors are turning to these bluechip entities as safe harbours in uncertain seas. Their established track records, strong fundamentals, and strategic positioning make them formidable contenders for long-term investment strategies.

However, investors should proceed with caution.

While bluechips present compelling opportunities, it's crucial for investors to conduct thorough due diligence, considering factors such as valuation, industry trends, and macroeconomic indicators.

Additionally, past performance is not always indicative of future results, and bluechip companies are not immune to downturns or market corrections.

Investors should maintain a diversified portfolio to mitigate risk and avoid overexposure to any single sector or company.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...