By: Pravin Palande, T Surendar/Forbes India
Around this time last year, Mumbai was still impatiently waiting for the arrival of the monsoons. It would have been the season’s best reprieve for anxious investors who were till then reeling under the heat of a global market meltdown. In retrospect though, it may have been the ideal starting point for Indian investors.
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Exactly a year before now, in our first cover story on the markets, we had recommended that investors resume buying. We had recommended a portfolio of 20 stocks that would mirror an array of opportunities the Indian economy presented.
A year later, barring two companies, the portfolio has ended with positive returns. Three companies P&G, Page Industries and Pidilite have returned 100%. Five other stocks gained 70%.
On the whole, the Forbes India 20 portfolio was up 54%, compared to 45% of the mid-cap index (most of our recommendation was from this category). The broad market went up by 15% during the same time.
To be honest, there were enough easy pickings. Many companies were powering ahead before the global bust and yet, their valuations had fallen off the cliff. Almost all our stock picks had a strong domestic story that helped insulate them from the global instability.
But that was last year. Many Indian companies are now quickly reaching their pre-slump level in sales. Having scaled back expansion plans, they will soon churn out their full capacities, leaving little headroom for volume growth.
Investors have already guessed that Indian companies will continue to perform well, and lapped up stocks at prices that have already discounted the current financial year’s earnings.
Our considered opinion is that any investments in the stock market may not yield above-average returns in the next one year.
AUTOIn Auto, we look for companies that have pricing power and should, ideally, not be affected by any negative international shocks. We have included Auto ancillaries in this segment.
1. Exide IndustriesExide Industries operates in the domestic markets and is a leader in batteries. The company is a market leader in batteries for two-wheelers and has seen a capacity expansion of 35% in the current year. There is a huge demand from both the replacement market as well as original equipment manufacturers and this will do well for the company. The core return on capital employed of Exide works out to 85%. The management is confident of maintaining a double digit growth rate for the next five years and see electric cars and hybrid cars as a big opportunity. Markets see a 20% upside for this stock for the next one year.
2. Escorts
Escorts is a domestic, auto and an agri-play company all packed together. This company can ride on the agriculture and monsoon story of India as 70% of the revenues ofthe company are based on selling tractors. And this segment has already registered 48% growth in the last year. The stock has moved up by 100% over the last year but looking at the overall prospects of the Indian economy, this company will only benefit. Escorts has only a 17% share in the tractors segment and this can only go up.The company has done some financial restructuring whereby the debt:equity ratio has been bought down to 0.3:1. Debt is down by Rs 200 crore.
Escorts is a domestic, auto and an agri-play company all packed together. This company can ride on the agriculture and monsoon story of India as 70% of the revenues ofthe company are based on selling tractors. And this segment has already registered 48% growth in the last year. The stock has moved up by 100% over the last year but looking at the overall prospects of the Indian economy, this company will only benefit. Escorts has only a 17% share in the tractors segment and this can only go up.The company has done some financial restructuring whereby the debt:equity ratio has been bought down to 0.3:1. Debt is down by Rs 200 crore.
3. Maruti Suzuki
Another domestic demand growth story. Maruti Suzuki is under margin pressure but volumes will easily go up by 15% in the domestic market. Maruti has a huge market share in the small car business. And this business is on a growth path. At some level the stocks appears fully priced.
Another domestic demand growth story. Maruti Suzuki is under margin pressure but volumes will easily go up by 15% in the domestic market. Maruti has a huge market share in the small car business. And this business is on a growth path. At some level the stocks appears fully priced.
But this is one company that has pricing power and other companies can only follow. The company is also increasing its focus on moving into non-EU territory where a chunk of its export volumes were dependent. The company crossed the 1 lakh sales mark in the month of May 2010 showing a growth of 28% over last year. This company is a clear long term buy and we are not setting any targets for appreciation.
Src: Via Moneycontrol
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