Buying the Dip? Here are 5 Stocks to Consider...

Indian share markets have been in a downward trend since October 2021. FIIs and FPIs (foreign portfolio investors) have consistently reduced their shareholding.

Retail investor buying has prevented the market from falling as much as it might. In spite of this support, Indian share market have still fallen from the all-time high.

It's not only the benchmark indices. Many stocks are also trading below their 52-week highs. This makes for a great opportunity to buy into some solid businesses.

So which companies should be on your radar? Here are five stocks you can consider...

#1 HDFC

The first stock on our list is India's largest mortgage lender, HDFC.

The company's shares are down almost 20% from its 52-week high in November 2021. It's down 6.6% in 2022.

The stock was caught up in the broad-based selling amid the Russia-Ukraine war. Other headwinds such as an expected rise in interest rates also caused investors to trim their holdings.

While analysts saw this as a concern, the truth of the matter is that HDFC's balance sheet is as pristine as it can get.

HDFC chairman Deepak Parekh said even though interest rate cycles may move up and down, customers who want a home will not hold back. This indicates the business will not be impacted.

And this can be seen in the company's latest quarterly results.

HDFC reported an 11.4% YoY increase in standalone net profit for the December 2021 quarter as demand for home loans continued.

The growth in home loans was seen in both the affordable housing segment, as well as, in high-end properties. In fact, in December 2021, the corporation claimed it recorded its second-highest monthly individual disbursements ever.

This is despite the fact that the previous year entailed concessional stamp duty benefits in certain states which were not there in the current year.

HDFC also plans to raise up to Rs 100 bn via a local bond sale to meet the revival in credit demand for new homes.

#2 Manappuram Finance

Next on our list is Manappuram Finance, an NBFC primarily dealing in gold loans.

The stock is down more than 50% from its 52-week high and 28% in 2022 and as it reported weak results for the last two quarters.

In the last two quarters, the company traded off margin for gold loan growth. This new business strategy helped it cover a lot of lost ground in terms of market share.

However, it also meant elevated advertising/promotion costs and incentives for employees. This translated into higher operating expenses and compression in spreads.

So why should this stock be on your radar?

Manappuram Finance has an established market position in the gold loan market. In the financial year 2021, the company's gold loan assets under management (AUM) grew by 7.6% despite increasing competition from banks.

The asset quality of the company has also been sound, except for fiscal 2021 when NPA levels marginally increased on account of the pandemic. However, this has steadily improved on account of the improvement in the repayment capacity of certain borrowers.

With a revival in demand and an uptick in gold prices, the company's revenue is expected to increase over the medium term.

The company also has the ability to absorb asset quality and earnings risks in the microfinance, vehicle or housing finance businesses in the near term.

#3 Hero MotoCorp

Third on our list is Hero MotoCorp, the largest two-wheeler manufacturer in the world.

The stock is down almost 30% from its 52-week high and is down 9.3% in 2022.

Shares of the company have been in a downslide in the last year as the pandemic hit demand and raw material cost inflation impacted profitability.

However, the management has indicated that underlying demand drivers are intact, which should lead to positive momentum is volumes in the coming quarters, with an improvement in margins.

Hero MotoCorp has also indicated that the EV product launch plan in 2022 is on track and that it will continue to focus on its EV portfolio, supported by new launches/variants at regular intervals.

While Hero MotoCorp's core business still lies in the motorcycle segment, the company believes that scooters will lead the adoption of electric vehicles in the country in the near term.

To gain an edge over other manufacturers, Hero MotoCorp will adopt Ather Energy's fast-charging tech for its electric scooters. The company owns a 35% stake in the EV startup.

It has also partnered with Gogoro to roll out Hero-branded e-scooters with a swappable battery.

Gogoro is a global leader in urban battery swapping and smart mobility innovation and is based out of Vietnam.

#4 IndiaMART InterMESH

The fourth stock on our list is IndiaMART InterMESH.

The company's shares are down more than 50% from its 52-week high and 32% in 2022. The correction in stock price was due to weak results for the December 2021 quarter.

The company's investment in various fintech and SaaS (software as a service) based companies has also led to investors questioning its aggressive expansion plans. The company spent Rs 9 bn on acquiring start-ups in the last year.

However, IndiaMART fundamentals are still intact. The company is the largest B2B digital marketplace in the country. It has nearly 60% market share of the online B2B classifieds space.

It has a portfolio of 6 m supplier storefronts, 102 m registered buyers and a total traffic of 748 m repeated users.

Besides this, the company has grown its profit at a CAGR of 52% in the last 5 years and is almost debt-free.

Going forward, the increasing adoption of the internet by businesses will fuel long-term growth. The company is committed to leveraging the opportunities that come by.

#5 Metropolis

Last on our list is Metropolis, a diagnostic chain.

The company's shares are trading down 50% from their 52-week high and 39% in 2022.

As Covid-19 cases continue to decline, testing for Covid-19 reduced, impacting the revenues of diagnostic companies like Metropolis which resulted in a decline in the stock price.

For the December 2021 quarter, Metropolis Healthcare reported a 30% fall in net profit. Revenues were muted due to a sharp drop in volumes.

The company, however, believes this is a short-term phenomenon. It says its results were impacted due to increased investments in digital marketing, manpower, and customer experience initiatives.

Metropolis has a strong position in the diagnostic market in India. It has a well-established brand. It also has healthy operating efficiency resulting in strong cash flows.

Going forward, the diagnostic and wellness sector is expected to report faster growth in the coming years, even after the pandemic subsides. This will result in tremendous growth opportunities for organised players such as Metropolis.

Should you buy the dip?

A 'dip' or a correction in prices is always a welcome opportunity to buy into companies that trade at expensive valuations.

However, one must stay calm and use this as an opportunity to invest in businesses only after thorough research. One must also ensure a reasonable margin of safety.

Markets are expected to stay volatile in the near term and could possibly fall further. Investors should exercise caution while making any decisions.

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...