Jefferies picks India stocks that have room to run — says one may have a 40% upside

Published Sun, Nov 28 202111:12 PM EST

Analysts at Jefferies recently named their top stocks to buy in India — and one could potentially go up by another 40%, they predicted. Stocks in India have largely soared this year as the major indexes sailed to new record highs. As of Friday's close, the Nifty 50 is still up more than 21% this year despite falling around 4% last week. The BSE Sensex has also seen big gains, soaring nearly 20% for the year. In a note published on Nov. 22, the U.S. investment bank named a slew of its top investment ideas from financials to autos to energy and more. To be clear, this was before global markets tumbled late last week as investors sold off after the omicron Covid variant was named a variant of concern. The World Health Organization said Sunday it's still not clear whether omicron causes more severe disease compared to infections with other strains such as delta. From Jefferies' list of stocks to buy, CNBC narrowed down to 8 stocks from the financial, auto and energy sectors. The investment bank gives buy ratings to stocks expected to have at least 15% total return within a 12-month period. Financials In India's financial space, Jefferies sees the highest potential upside for ICICI Prudential Life Insurance . The investment bank has a "buy" rating on ICICI Prudential Life Insurance's stock, with a price target of 830 rupees — more than 40% higher than its Friday close. ICICI Prudential Life Insurance is "well-placed to benefit" from factors such as a better product mix and improving margin profile, according to analysts Mahesh Nandurkar and Abhinav Sinha. "IPRU Life is coming out of multiyear weakness in growth," they said. "This should give way to healthy 19% (compound annual growth rate) over FY21-24." Compound annual growth rate is used to measure a company's performance, and refers to the average yearly growth rate of an investment over a period of time that spans more than a year. Other stocks in the sector that Jefferies recommend include ICICI Bank — one of the largest private lenders in India. The analysts set a price target of 1,000 rupees for the stock, a potential upside of about 38.5% from its last close. The bank also likes Housing Development Finance Corporation , and has a price target of 3,480 rupees on the stock. That's nearly 27% higher than Friday's close. "As the largest pure play on mortgages in India, HDFC Ltd. is well-poised to benefit from improved demand in housing arising from improved affordability, low interest rates, limited impact of Covid on jobs, and superior access to funds," the analysts said. Autos Among India's automakers, Jefferies sees the highest potential gains for Tata Motors . The U.S. investment bank has a price target of 625 rupees for the stock, representing about 35.8% potential upside from Friday's close. "An improved strategy and cyclical recovery should drive a strong turnaround in Tata's India business," the Jefferies analysts said. "Tata is regaining its lost market share in both trucks and passenger vehicles," they said. "We expect strong volume growth and improving margins for [its] India business." Beyond Tata Motors, Jefferies also has a buy rating for TVS Motor and Maruti Suzuki . Oil and gas Jefferies picked two stocks to buy in India's oil and gas sector: Gujarat Gas and Reliance Industries . The investment bank sees natural gas distributor Gujarat having the larger potential upside between the two companies, with the 830 rupees per share price target representing a more than 26% gain from Friday's close. Acknowledging that Gujarat Gas shares are "not cheap" right now, the analysts nevertheless said: "We expect the stock to trade at a premium, given improving outlook, potential upside optionality, and low volatility in earnings despite much higher industrial exposure than peers."

A pedestrian speaks on a mobile phone as he looks at share prices on a digital broadcast outside the Bombay Stock Exchange (BSE) in Mumbai on November 10, 2020.

PUNIT PARANJPE | AFP via Getty Images

Analysts at Jefferies recently named their top stocks to buy in India — and one could potentially go up by another 40%, they predicted.