Best investment options: Stocks, sectors that can sparkle in future
Rajiv Bhuva June 14, 2012Does an Infosys come once in a lifetime? Not necessarily, but it is a hard act to replicate. The iconic software company has seen its market capitalisation skyrocket from Rs 54 crore on debut day on June 14, 1993 to Rs 1,43,460 crore exactly 19 years later. We try here to spot winner-stocks but make no claims that the sectors and companies listed here will shine the way it has done.
That said, some ground rules help earn high returns. Large-cap stocks are probably better for wealth maintenance. "Wealth creation happens in the mid-caps," says Chokkalingam G., Executive Director and CIO of Centrum Wealth Management. Then, do not look at a company's price performance. "Just focus on fundamentals," says Taher Badshah, Co-Head of Equities at Motilal Oswal Asset Management Company.
A key tip: stay put for a long time and let the power of comounding take over. "Remember that stop-loss is for traders," says Chokkalingam. Also, look for a pattern. Chhavi Moodgal, an employee of Standard Chartered Bank and a stock-market investor, cites the case of Havells India, which has moved from an industrial appliances company to highmargin, branded play. Moodgal herself marks to market her portfolio every month. "I analyse the outlook for the sector going forward and weigh my decision to stay invested or exit in case of some significant development for the company or the sector."
What are the signs that should prompt you to exit a stock? Moodgal says that for sectors with inherent regulatory risks, you should factor in the risk and then ring - fence yourself.
Chokkalingam says if you are invested in a company that is aggressive in making acquisitions, you should be wary of the excess leverage it takes on its books.
So, where do you look for high returns? Based on our discussions with several stock market experts and observers, here are some recommendations: Apparel: Page Industries is the exclusive licensee of Jockey, one of the world's leading premium innerwear makers, with a network of 16,000 retail outlets in 1,100 cities and towns. It is now planning to expand to more markets and launch more products.
Food & beverages: Speciality Restaurants has popular fine dining brands such as Mainland China and Oh! Calcutta. Helping it is the rise of urbanisation and a bulging middle class willing to spend on good food in a classy ambience. Old banks: Old generation private banks like Karur Vysya and City Union Bank are good bets for the future.
Regulatory easing will spur the sector, and banks such as these will be handy vehicles to pick up and turn around for new entrants, says Sunil Mishra, CEO of Karvy Private Wealth. J&K Bank, which has a near-monopoly in Jammu & Kashmir, is worth a look as well.
Big banks: Large banks, too, will grow in an economy that has a nominal growth of 15 per cent, requiring money supply of 17 to 18 per cent. If State Bank of India manages non-performing loans efficiently and grows its balance sheet by 20 per cent, it could post 25 per cent profits in the long run. And HDFC Bank, with exceptional operating results, could expand its market share of 2.5 per cent.
Automobiles: Eicher Motors's cult "Bullet" motorcycles continue to thrive, despite the entry of super competition. The Bullet has a waiting list of a year or more for delivery. The company is adding capacity to meet demand. Consumer discretionary: United Spirits's sales volume is 10 times its next peer and it has 15 per cent operating margin. While high debt of the group is a concern, the industry has the potential to grow its sales volume by 10 to 12 per cent on an annual basis.
FMCG: One of India's fastest-growing fast-moving consumer goods (FMCG) companies, Emami has gross margins of 59 to 65 per cent over the past four years, and is present in under-penetrated categories with limited competition from multinational corporation. It is expanding its distribution and rural reach, and plans to launch two to three products every year.
Besides, a handful of other sectors are likely to see surging demand in coming years. These include education, especially school companies in Tier-II cities; and allied infrastructure, which caters to pockets of the larger sector and is likely to grow faster. Also, India's growing population and inadequate health-care facilities mean health-care companies look good, though Karvy Private Wealth's Mishra does not see affordable health care's chances to win in the longer run. Obviously, this is not an exhaustive list. And there is no saying whether the stocks listed will fly or crash. So, remember the ground rules mentioned earlier.
There is always an Infosys lurking around the corner; it is discipline that will help you spot it.