Coal India, South Indian Bank among 17 deep value stock ideas from ICICI Securities

Domestic brokerage firm ICICI Securities has listed 17 stock ideas, categorizing them as deep value stocks, stating that the proportion of ‘investable value stocks within large-caps remained steady while the same has been diminishing to historical lows within mid and small-caps.

South Indian Bank, ONGC, HPCL, Oil India, Coal India, Karur Vysya Bank, CESC, PNB Housing, SBI, GAIL, NMDC, City Union Bank, Hindalco, Gulf Oil, Axis Bank, Sun TV and NTPC are stocks that ICICI Securities has ranked in ascending order from ‘deep value’ to ‘value'.

“Stocks related to the aforementioned sectors are typically capital-intensive, cyclical and value stocks. Our back-testing indicates that as long as the investment, commodity and credit cycle continue to be robust, value stocks will have the necessary catalysts to keep outperforming,” said a report by the domestic brokerage firm.

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The proportion of ‘investable value stocks’ (RoE >14% and earnings yield > bond yield) within the top-1,000 universe has halved to 7.6%, from 15% over the last one year, largely led by micro-caps, small-caps and mid-caps in descending order (cycle low was made in Dec’17 at 6%), the report added.

The value strategy of ICICI Securities is defined as the identification of those stocks that the market is pessimistic about, in terms of the company’s long term growth prospects to start with, while they see the fundamentals of such companies as robust amid improving near-term growth prospects.

The framework so used for identifying value stocks includes a combination of parameters that spots unwarranted market pessimism about ‘long-term prospects’ as measured by their proprietary ‘market-implied long-term growth value’ (MILTGV) framework, scenarios where earnings yield comes up above bond yield and attractive P/B ratios relative to the stock’s RoE profile.

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