As Nifty Hits All Time High, We're Closely Tracking These 5 Stocks

The Indian stock market is on a roll.

The benchmark indices have scaled all-time highs regularly. Recently, the Sensex crossed 75,000. The day may not be far away when the Nifty crosses 25,000.

Now the only question on Dalal Street's mind is, 'What next'?

For many investors, the answer to this question is obvious. They think the markets will keep rising.

Their 'reasons' are valid: Strong retail investor participation, a buoyant primary market, the ongoing rally in midcaps and smallcaps, the likelihood of a pre-election rally, and solid earnings growth.

However, these are justifications for the rally and not actual 'reasons.' In fact, there is only one big reason why the market is at an all-time high. And that is investors think they will continue to make profits, no matter what happens in the short term.

There is a difference between the times when investors look for a justification to buy stocks (like good earnings growth) and when that same justification is used as a narrative to buy stocks.

The first approach is conservative and is seen during the early phase of a bull market, when investors are still cautious. They will say things like, 'This company has shown good growth during the recent downturn without using debt. It deserves serious consideration.'

The second approach is speculative and is seen towards the end of a bull market, when investors are not cautious at all. They will say things like, 'This company is going to deliver a huge 40-50% growth over the next 12-18 months and the PE is only 40. The stock could double. Let's buy now.'

I will leave it to you, dear subscriber, to decide for yourself which one of the two is more prevalent in the market right now.

In this article, we will discuss 5 stocks belonging to the Nifty that we are tracking closely at Equitymaster, and you should too.

#1 Coal India

Historically, coal and oil have served as the bedrock of India's industrial growth and modernisation, giving people access to modern energy services.

Despite this progress, the average household in India only consumes a tenth as much electricity as the average household in the United States.

India's sheer size and its huge scope for growth mean that its energy demand is set to grow by more than that of any other country in the coming decades.

According to the National Electricity Plan-Volume-I, the total coal consumption in the coal-based power plants of the country has risen from approximately 608 million metric tons (MT) in 2017-18 to about 777 million MT in 2022-23, marking a compound annual growth rate (CAGR) of about 5%.

Though the proportion of non-coal sources, particularly renewables, has and will increase, coal is anticipated to remain the dominant fuel source for electricity generation in India.

Coal India, the world's largest coal company by production, produces 80% of India's total coal volumes. It enjoys a near monopoly status in the Indian coal market and is the main supplier to power plants and other coal-consuming sectors.

Between 2019-2023, the company reported a sales and net profit compound annual growth rate (CAGR) of 9.8% and 31.9%, respectively.

In FY24, Coal India paid two interim dividends of Rs 15.25 and Rs 5.25 in November 2023 and February 2024, respectively. The final dividend will be announced at the time of the annual results.

The returns have been phenomenal with the return on equity and return on capital employed averaging at 53.7% and 70.8%, respectively over a 5-year period.

Going forward, the company is confident of maintaining the growth in production by ramping up production and incremental output from existing and new captive mines. It's confident of continuous demand from the power and steel sectors.

Rising coal production not only enhances the total revenue, but also usually results in higher e-auction sales and healthier profit margins.

Apart from the tailwinds from volume growth and higher e-auction sales, the company stands to gain from the potential value unlocking of its subsidiaries.

It's expected to launch the initial public offering (IPO) for two of its subsidiaries, Bharat Coking Coal Limited (BCCL) and the Central Mine Planning and Design Institute (CMPDI), in FY 2025.

The company's long-term prospects are tied to India's ability to balance economic growth with environmental sustainability. Moreover, Coal India, being a cyclical stock, can see huge fluctuations in its earnings if coal prices fluctuate.

Therefore, investors should carefully consider the risks and potential rewards before investing.

To know more about the company, check out Coal India's financial factsheet and quarterly results.

#2 Dr Reddy's Laboratories

Dr Reddy's Laboratories is an Indian multinational pharmaceutical company based in Hyderabad. It manufactures and markets a wide range of pharmaceuticals in India and overseas.

The company was founded by Kallam Anji Reddy, who previously worked in the mentor institute Indian Drugs and Pharmaceuticals.

The financial year 2023 was one of the best years for Dr Reddy's Laboratories. The company's revenue came in at Rs 245.9 billion (bn) and grew by 15% on a YoY basis. The growth was mainly driven by new product launches, partly offset by price erosion.

Its total net profit more than doubled and grew by 107% on a YoY basis to Rs 45.1 bn. The increase was driven by new product sales with higher gross margins, higher government incentives, and favourable foreign exchange.

It launched 10 new products during the quarter and 94 new products during the year across various countries of emerging markets.

Last year, the drug maker announced that it has entered the trade generics business in India with the launch of its new dedicated division RGenX. Dr Reddy's Laboratories aims to roll out its trade generics across cities and towns in India, including rural areas.

Dr Reddy's diversified global presence, capability, and strong balance sheet make it a partner of choice for various business partners.

In the FY23, the company declared a final dividend of Rs 40 per share, with a dividend payout ratio of 14.7%. The five-year average dividend payout ratio stands at 19.3%.

To know more about the company, check out Dr Reddys Laboratories' fact sheet and quarterly results.

#3 Power Grid Corporation

Established in 1992, Power Grid is among the biggest public-sector undertakings (PSUs) in India.

Despite its modest origins, the company has expanded rapidly to meet the country's insatiable demand for electricity. By carrying electricity through its nationwide grid network, the company acts as a connecting factor between power-generating companies and power-trading companies.

The company also ventured into EV charging infrastructure and is setting up charging stations across the country.

Between 2019-23, Power Grid's revenue grew at a CAGR of 6.8%. The net profit grew by 11.3% on CAGR basis on the back of cost-plus tariff structure.

To meet the growing power demand, the company is heavily investing transmission projects to expand its transmission network with a focus on interstate and intrastate projects. This aims to connect renewable energy sources, improve grid stability, and facilitate electricity trading.

Going forward, growth in renewable energy capacity, EV charging network, and 5G telecom is expected to drive Power Grid's revenue and profitability.

Along with having a monopoly status, the company has rewarded its shareholders with hefty dividends over the years. Power Grid declared two interim dividends in FY23 as well as a final dividend, resulting in a total dividend payout of Rs 14.8 per share.

In FY24, Power Grid paid two dividends of Rs 4 and Rs 4.5, in November 2023 and February 2024, respectively. The final dividend will be announced at the time of the annual results.

In September 2023, the company declared a bonus issue of shares in the ratio 1:3.

You can check out Power Grid's dividend payout history.

For more details about the company, check out Power Grid's fact sheet and quarterly results.

#4 Tata Motors

Tata Motors is the automobile arm of the prestigious Tata Group.

The company designs manufactures, assembles, and sells passenger, utility, commercial vehicles, and defence equipment. It also offers vehicle financing, car service, spare parts, and accessories.

Tata Motors has an established presence in the global luxury car market via its subsidiary Jaguar and Land Rover (JLR).

Tata Motors is a market leader in the commercial vehicle segment. It also has a leading market share in India's passenger electric vehicle (EV) segment.

The company has a clear plan to transition to a mostly EV company by 2030 and has backed the plan with billions in funding, leadership support, and technology partnerships.

A good example of the company's EV push is the expansion of their Sanand plant in Gujarat. This plant is Tata Motors' largest manufacturing facility in India. It currently produces a wide range of vehicles which includes the Tiago, Nexon, and Altroz.

The expansion of the Sanand plant will see the addition of a new lithium-ion battery production facility, expected to be operational by as early as 2025.

The Tata Group's investment in lithium-ion batteries is another part of its broader strategy to transition to electric vehicles. The company is also working on developing its own electric vehicle charging infrastructure.

The sales growth has been solid over the last few years. Its operating margins have also been improving steadily. This steady margin improvement is what has led to the positive bottomline.

The business is doing quite well. This is evident from the cash flow from operations, which is close to double the number it was just four years ago.

The only concern is debt. The company's debt to equity is 2. But that won't be a problem as long as the cash keeps flowing in.

#5 Hindalco

Hindalco Industries is an Indian aluminium and copper manufacturing company. The company is a subsidiary of the Aditya Birla Group.

Hindalco is the largest aluminium rolling and recycling corporation in the world, as well as a major copper player. It is also one of Asia's top primary aluminium producers.

Building and construction, auto-motives, packaging, electrical, consumer durables, refractories, and ceramics are some of the industries it serves.

Along with its global subsidiary Novelis Inc., Hindalco has a presence in 12 countries. From bauxite mining to alumina refinement, aluminium smelting, rolling, and extrusions, the company engages in a wide range of operations.

The company has thrown its hat into the EV ecosystem. Hindalco, in December 2023, announced its plans to invest Rs 8 billion (bn) to set up a battery aluminium foil plant in Odisha as it evaluates opportunities in the electric mobility value chain.

The Odisha unit will be located alongside a 25 MW solar power plant. It can access extra solar energy from a 400 KV national grid connection. This 25,000-tonne plant will be commissioned by July 2025.

Hindalco expects national demand for battery-grade aluminium foil to reach 40,000 tonnes by 2030, prompting their foray into this space. The unit will initially focus on exports. The target market will be abroad and domestically.

Hindalco is in the process of qualifying as a supplier with lithium-ion cell manufacturers in India, Europe, and the United States.

It has also further signed a memorandum of understanding (MoU) with Phinergy, a metal-air battery technology firm, and IOC Phinergy, a joint venture between Phinergy and the Indian Oil Corporation.

The MoU commits to research, development, and pilot production of plates for aluminium-air batteries and recycling of aluminium after usage in batteries.

Going ahead, the company is focused on downstream expansions in India, with an emphasis on increasing contributions from value-added products. This strategy aims to enhance profitability and protect the company from fluctuations in aluminium prices.

Further, it expects to sustain its positive momentum in the copper business, driven by increasing volumes, robust demand, and improved TC/RC (treatment charge/refining charge) margins.

For more details about the company, check out Hindalco's Fact sheet and its quarterly result.

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...