In all this doomsday prophecy of end of world in 2012, that has been too fashionable these days, we thought of commencing the new financial year on a positive note. So here is an endorsement on the long term prospects of investments in Indian stock market from one of the most respected figures in Indian finance – Deepak Parekh, the patriarch figure at HDFC and HDFC bank:
Interviewer: Supposing somebody came to you, youngish guy and said I have Rs 10 lakh, I don’t want to look at them for another 10 years, should I put them in the stock market, what would you say?
Deepak Parekh: I would say that if you do not put it in the stock market you are a fool.
Interviewer: Really you are that optimistic?
Deepak Parekh: But not in all companies in some companies where there are growth opportunities.
Interviewer: A 10 year horizon you put 10 lakhs, you should be okay?
Deepak Parekh: You should be okay.
Our long term outlook on the stock market investment remains broadly in sync with what HDFC Chairman said in the above interview. One might be bearish for months or year, but when it comes to decade there is no other signal but that of screaming a BUY.
But as with all things in life, investing in stock market has its own caveat. As Mr. Parekh said, “But not in all companies in some companies where there are growth opportunities.”
It is over here, that Anavaran can render its services in separating the flower from the weed. While our valuation service remains exclusive for our subscribers, here we reveal some of the investment themes and companies that we believe could yield good returns over the long run.
Mid Sized Public Sector Banks: Most of the public sector banks are currently trading below Price-to-bookvalue of 0.5x and PE range of 4-5. Impressive dividend yields, as high as 5%, further sweetens the deal. These PSBs have been growing at 15-20% per annum for the over the past 5 years. Being government owned, most of these banks have followed conservative lending practices thus keeping their NPAs under control. Given historical trends and fundamental precedents, we expect these banks to trade at PBV of 1.0x over the coming 2-3 years. While, rise in NPAs could keeps stock prices under pressure over the short term, we view these government owned financial entities as attractive investment proposition over the long run. Some of the banks we like in this category include:
Andhra Bank, Bank of Maharashtra, Central Bank of India, Corporation Bank, Dena Bank, Punjab and Sind Bank, Union Bank of India, United India Bank etc.
Housing finance companies:- An investment story similar to that of public sector banks with similar operations and ownership but with added advantage of lower operating costs, focus on single sector and rising trend in housing finance. We like Canfin Homes, GIC Housing Finance and LIC Housing Finance amongst housing finance companies. Feeling sad to exclude HDFC, whose stock prices we believe has run ahead of its fundamentals.
FMCG: Small is beautiful theme holds good here as well. While FMCG giants like Colgate, HUL, ITC, Marico, Godrej Consumer look aggressively overpriced trading at PE of more than 30. Smaller peers like Bajaj Corp, Jyothy Laboratories etc who have carved out a niche for themselves look much better placed to gain from rising consumerism in rural markets.
Consumer Durables: While Korean giants rule the roost in this segment, companies like IFB Industries and Mirc (maker of Onida) have invested a lot and could yield decent returns for long term investors.
Textiles: To be frank, except for S Kumar and Zodiac, we don’t like their operations a lot. It is more to do with their real estate assets that possess as legacy of yesteryears. Arvind, Bombay Dyeing and Century Textiles, could be the ABC of the theme. Others like Raymond might be beneficiary as well.
Land Banks: While textile hog all the limelight when it comes to embedded real estate value, but there are score of others who own land banks that could be monetized over the coming decade. Just to warn, its expected to be a lengthy process, a really lengthy one. Value hunters could have a look at Atul Ltd, Indian Hume Pipe, MTNL, Tata Communications etc to explore the theme.
There are scores of other themes and companies that we like, but thinking of saving some for our subscribers. After all there should be some incentive to register for our investment research services. For target price, valuation, investment horizon and other nitty-grittties please feel free to contact us at email@example.com or chat with our support reps.