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BofA Securities on Friday said it prefers largecaps in the near term over the midcaps and smallcaps. These views came after the benchmark BSE Sensex has climbed 107% since March 2020, while the BSE Midcap and BSE Smallcap index have jumped 129% and 190%, respectively, during the same period. The overseas financial firm is overweight on industrials and financials.

However, given the rally in metals is likely near an end and Fed tapering could put pressure on commodities, BofA Securities cut materials to underweight from overweight earlier. “With cautious a view on markets, we raise skew towards defensives in staples, utilities and IT and maintain underweight on discretionary,” it said. Considering the present market condition, BofA Securities is positive on 15 largecap stocks. Have a look

Larsen & Toubro | Target price: Rs 1,954
BofA Securities has valued the company’s parent core business (adjusted for dividend income from its subsidiaries/JVs) at 20x 2 yr forward earnings, for core business RoEs of 16% in FY23E.

Adani Ports | Target price: Rs 874
The brokerage firm values each of the company’s port assets based on the free cash to equity-based DCF using cost of equity ranging from 11.1% to 12.7% and assuming it gets an extension in its concession agreements wherever applicable (for example, 20 years of extension is likely at the Mundra port after its expiry in CY31).

HDFC Bank | Target price: Rs 1,850
BofA Securities said it has set a target price at Rs 1,850, assigning value to the standalone bank and subsidiaries separately (3.8x P/B for standalone bank, 4x P/B for HDB, 20x P/E for HDFC securities).

HDFC | Target price: Rs 3,135
The brokerage values HDFC’s core mortgage business at Rs 1,541 per share (49% of PO) using a 2-stage Gordon Growth model. It assumes ROE/growth of 13.9%/ 12% for Stage-1 and ROE/growth of 14.6%/8% for Stage-2 with CoE of 11.5%. In addition, subs and associates (HDFC Bank, HDFC Life, HDFC AMC, Bandhan Bank) post 20% discount contribute Rs 1,593 per share (51% of PO) to HDFC’s fair value.

ICICI Bank | Target price: Rs 820
To value the standalone bank, BofA Securities used a two-stage Gordon Growth model assuming a Stage 1 high-growth period (ROE 15%, growth 15%) then a Stage 2 normalisation period (ROE 16%, growth 8.5%). It used a cost of equity of 12.3%.

List of other 10 stocks BofA Securities is bullish on

Bajaj Finance | Target price: Rs 7,010
State Bank of India | Target price: Rs 550
Axis Bank | Target price: Rs 890
Infosys | Target price: Rs 1790
HCL Technologies | Target price: Rs 1,235
HUL | Target price: Rs 2,700
ITC | Target price: Rs 263
Nestle India | Target price: Rs 20,000
NTPC | Target price: Rs 136
Power Grid | Target price: Rs 199