2 Large-Cap Stocks To Watch Out For

  • Stock Market Analysis
  • Editors Pick

Large-cap stock investing involves greater safety, steady dividends, and greater analyst coverage. However, Indian markets over the years have witnessed Small and Mid-Cap stock funds outperforming the blue-chip and large-cap funds.

That said, there are few large-cap stocks in this bull market that offer momentum as well as value.

Bajaj Finance (NS: BJFN ) and United Spirits (NS: UNSP ) to name a few.

Bajaj Finance Ltd.
 that stemmed out of the humble two-wheeler financing company Bajaj Auto (NS: BAJA ) Finance, is now one of the most stable companies providing consumer loans across a wide array of financial products. 

Despite the current overvaluation, Bajaj Finance is a great potential investment given the economic slowdown in India which is now expected to reach its tail end.

In an unexpected mid-quarter update, Bajaj Finance announced that it expects its gross and net non-performing assets to be higher as a repercussion of the pandemic. 

As compared to the previous quarter, average monthly bounce rates are 1.08x. Consequently, Bajaj Finance recently saw a 5% downward adjustment in its price in five days after the announcement by the NBFC that it had failed to meet its financial projections due to the setback from Covid-19. 

 Bajaj Finance Share Price
Source: Investing.com, Tavaga Research

With the economy reviving in the backdrop of the falling active cases, it is expected that Large Cap Stocks are now better positioned to take the journey to recovery and take Nifty-50 beyond the historic mark of 16,000. 
Bajaj Finance has witnessed a reduction in volumes but this appears temporary given its high customer acquisition and potential demand that has pent up due to the lockdown. The NBFC believes that unlocking starting in June is going to provide some relief. 

Another notable development is the perpetual authorization of the 'Bajaj Wallet' by the Reserve Bank of India. ‘Bajaj Pay’ has been rolling out slowly towards expansion. This can be a huge game-changer for Bajaj Finance, the company bestowed with a huge customer database. 

United Spirits Ltd. (Mcdowell-N)
 is one other such Large Cap Stock that displays potential. United Spirits is the second largest company in its segment and boasts a great portfolio of brands. 
United Spirits formerly known as McDowell and Company Ltd. is known for its alcoholic beverages such as McDowell's Number 1, Royal Challenge, and the like. 

With state governments cutting back on excise duties, there is a better regulatory outlook for United Spirits. Additionally, United Spirits Ltd. has shown strong momentum in the fourth quarter especially in its premium segment.
United Spirits Share Price
Source: Investing.com, Tavaga Research

While United Spirits’ on-trade business received a setback due to the Covid lockdown, the off-trade channels, as well as the premium and above segment, have shown resilience. This has been possible because of budgeting in advertising to prevent depleting margins and also because of persistent investment in the past.

The company also initiated substantial debt reduction which has helped maintain its working capital. The company's strategy to ‘premiumise’ its products has been successful and a major chunk of revenues is being generated by this line of products. 

A 26% YoY revenue growth can be seen in this segment. Currently, this segment generates more than 60% of total revenues. Keeping this ‘premiumization’ strategy as a guide, the beverage maker is looking to divest its ‘mass-oriented brands with the help of investment bank Morgan Stanley (NYSE: MS ). 

We recommend keeping a close watch on these two large-cap stocks for the long term & consult a SEBI Registered Investment Adviser before taking any fresh position.

Disclaimer: The above analysis is not a stock recommendation. Kindly consult a SEBI Registered Investment advisor for recommendations.

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