The S&P BSE midcap index has surged nearly 6 per cent so far in 2015, compared with over 5 per cent decline in the S&P BSE Sensex.
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NEW DELHI: Calendar 2015 may have been a lacklustre year from the domestic equity market’s perspective, but it was a watershed year on one aspect: it marked the return of retail investors to equities via the mutual fund route.
Smart retail money flowing into equities via mutual funds supported the benchmark indices at a time when the foreign institutional investors (FIIs) went on a selling spree.
Fund houses continued to be bullish on the equity market in 2015 and purchased shares worth a staggering $11 billion, primarily on account of strong participation of retail investors.
“Domestic mutual funds invested almost $11 billion in domestic equities in 2015, up from about $4 billion in 2014. Indian households have been warming up to financial assets and the percentage of their wealth invested in equities has been increasing,” said Motilal Oswal, Chairman and MD, MOFSL.
“Given the sluggish real estate market and weakening gold prices, I expect equities to attract a growing share of Indian households’ savings. Equity-oriented mutual funds would remain their preferred vehicle for equity market exposure,” he said
The S&P BSE midcap index has surged nearly 6 per cent so far in 2015, compared with over 5 per cent decline in the S&P BSE Sensex.
Even though the S&P BSE Sensex failed to deliver positive returns in 2015, it was an IPO-heavy year, when companies largely from smallcap and midcap segments raised about Rs 13,000 crore.
Most of the IPOs that hit the market in 2015 belonged to the midcap and the smallcap segments. Experts say these stocks will perform well as and when the economy recovers.
“The economy is changing and obviously companies that are going to become big will have to first start small. They are going to participate in the changing economy. It is the law of nature that the small grows big and the big kind of comes out,” said Nilesh Shah, MD, Kotak Mutual Fund.
“There will be a lot of action in the midcap and smallcap segments, but midcaps and smallcaps are minefield. If you go wrong on the governance side, if you go wrong on the business side, then you can lose a lot of money, which is why it is important to have a portfolio approach,” he said.
Shah said over time some 400 companies would outperform the top 100 companies, because they are heralding the change in the economy and they are the companies that would go into the index over time.
Even though a lot of money is routed through mutual funds, there are a number of individual names, which investors can look at for wealth creation.
Here is a list of investment ideas from different market experts, who made these recommendations to their clients for a minimum investment horizon of 12 months.
Analyst: Dipen Sheth, HDFC Securities
Sanghi Industries: India is in the middle of an infrastructure boom despite the slowdown that we are seeing in real estate. Housing is still a very large consumer of cement and as more and more public infrastructure gets built up, urban infrastructure will get built out.
The long-term demand drivers for cement are much more robust today. Apart from being a local commodity, cement is also a commodity that requires very large deposits of lime stone, which has a rough conversion ratio of one tonne limestone ultimately giving one tonne cement.
“Here, Sanghi has got an nameplate capacity of 2.5 million tonnes and it has got 1 billion tonnes of access to limestone in Kutch. Coupled with that, it is now aggressively shifting over to the sea route to transport cement to large demand markets such as Maharashtra or southern Gujarat and so on,” said Dipen Sheth, HDFC Securities.
"There is an opportunity for this company. Remember, it was an over-leveraged debt-restructuring story just three -four years ago. So, there is an opportunity for this company to compound continuously,” he said.
Majesco: The opportunity for Majesco for compounding returns from here on looks much better, as it is in a very-very niche business. Majesco is into software products for insurance companies, whether it is property and casualty or general and life insurance.
“Majesco is still a $100 million company in this space and can give it an addressable opportunity of $9 billion in the US. Remember, we are saying this in the context of large IT services companies,” said Dipen Sheth, HDFC Securities.
While traditional, bread-and-butter players like TCS, Infosys, Wipro and HCL Tech are running into demand headwinds in the US right now, this is one company which is sitting on $100 million revenue in a $9 billion addressable opportunity with products that are highly rated by the Gartners of the world.
“Majesco has a subsidiary in the United States, which is listed there and which can help it gain credibility both with respect to clients as well as employees. I would actually stick my neck out on Majesco and say that there is an opportunity,” he said.
Analyst: Pankaj Pandey, HoR, ICICIdirect.com
Jagran Prakashan: This stock has good triggers for the next one year. If you look at it from a print perspective, this company is the number one player in UP, wherein you can expect election-related spend to drive top line besides economic improvement. In addition to that, it is number two player in a number of other geographies such as Haryana, Jharkhand and Uttarakhand. “The radio business is also doing quite fine with Ebitda margins at 30 per cent, though we still have given a 25 per cent-odd discount,” said Pankaj Pandey, HoR, ICICIdirect.com.
"We derive a lot of comfort from the valuation from and also from the front that there are growth trigger in place for the next one year for this company and which is why we like the stock within the media space with a target price of 193," he added.
Bajaj Finserv: “After the announcement of FDI hike, we have seen a couple of news on that front and which is why are positive on stock like Bajaj Finserv which is our pick for 2016," said Pankaj Pandey, HoR, ICICIdirect.com.
"If we look the general insurance space, this company is trading at 17 times FY17 basis earnings, the general insurance business. The deals are happening at about 24-25 times which we believe that this company in particular will have a scope for rerating," he said.
The entire space looks interesting over the next one year and within the insurance space, Bajaj Finserv is one of the most efficient players in both life and general insurance, Pandey said.
Jet Airways: "We have a target price of Rs 790 on Jet Airways, and we would want to believe that it could see margin expansion on this one. I think that is very much possible in a scenario where the crude, the aviation turbine fuel has corrected some 43 per cent from the top,” said Pankaj Pandey, HoR, ICICIdirect.com.
"If you look at the industry, it is still not competing on prices, which I think is very positive and encouraging trend from overall perspective. We believe that the margin expansion will be more than what we had earlier anticipated, and I think the crude is still expected to stay low which is where the trigger would come from," Pandey said.
“In addition to that, if we look at the growth in passenger traffic, it has been quite good at about 19 per cent odd per cent, which augurs well from earnings perspective and this stock is still substantial discount compared to the market leader. We believe that this stock has a lot more to catch up and which is why it is one of our top picks,” he said.
Greaves Cotton: Greaves Cotton’s auto business contributes about 55 to 60-odd per cent of the top line, which is expected to remain more or less stable. They have a market share of about 80 per cent in the three-wheeler space.
“Since they have already exited the infrastructure business wherein they were making losses, we are hoping that the farm equipment business is also expected to do well going forward," said Pankaj Pandey, HoR, ICICIdirect.com.
"I think all that would lead to about 30% kind bottom line growth for the next two years and this stock is trading at about, available at about 15-16 times FY17 basis which we find quite attractive," he added.
Pandey is of the view that the capex requirement is not that much and we would expect company to generate good amount of cash flows and deliver ROEs of upwards of 20% plus and which is why we like the stock given the kind of bottom line expansion which the company would witness over the next two years.
Somany Ceramics: Tile, as a space in the consumption building material segment, has been doing quite well. "We have seen Kajaria Ceramics doing extremely well. Somany Ceramics is at about 23 per cent discount, compared to Kajaria and historically this is traded at about 17 per cent discount. What we are expecting is that besides good demand, we would also see the benefit of margin expansion panning out," said Pankaj Pandey of ICICIdirect.com.
"We are hoping that from about 12 to 13 dollar per MMBtu, if gas prices come down to about $7-8, with the company retaining half of these benefits, it will shave good margin expansion of 300 to 400 bps. Though we have not built in our estimates, but that will trigger 40 per cent to 50 per cent jump in EPS. We believe that can be further icing on the cake," he said.
Pandey said the stock was still trading at a discount and we would want to believe that given that the gas prices expected to remain subdued, there will be a good amount of margin expansion. Because of all these positives, we continue to like the stock, and this is our top pick for 2016.
Analyst: Vikas Sethi, MD, Sethi Finmart
Ambika Cotton: The company is a leading manufacturer of premium quality yarn for hosiery and weaving industry. It is a preferred supplier to almost all the leading international shirt manufacturers around the globe. Almost 60 per cent of revenues come from exports.
"The company has a very healthy balance sheet with negligible debt, very high return ratios and the valuations at the current levels look pretty attractive, and to add to that even Narayana Murthy of Infosys has invested into this company which further gives confidence," said Vikas Sethi, MD, Sethi Finmart.
“I am bullish on the stock. The stock has been rising and I have a target of around Rs 1,350 in a year’s time,” he said.
Repro India: This company is in the business of printing and stationery, but it is trading at expensive valuations. "The company looks expensive, but I feel that the future of this company looks pretty promising. This company is going to revolutionise the concept of printing books," said Vikas Sethi, MD, Sethi Finmart.
"They have actually entered into a tie up with almost all the leading e-retailers like Amazon, like Flipkart and they can now print even one book on demand and deliver to the consumers immediately," he added. This is going to be a revolutionary concept and they have recently tied up with an American company by the name of Ingram which is a $2 billion company and the world's larger content aggregator and distributor of books.
"I am bullish on this stock and although the valuations look pretty expensive at this point in time, but I think in the next three to four quarter when revenues and profits start flowing in from the new ventures, the stock would look pretty attractive," added Sethi who has a target price of Rs 750 on the stock.
Analyst: Hemang Jani, Senior VP, Sharekhan
BEL: In the entire defence theme, people are looking out for companies where there will be a meaningful top line growth and that is coming through only from the government side.
"The private sector is not really spending, so we think that given the thrust of the government on the indigenisation that is something which will be a big a trigger from a company like BEL," said Hemang Jani, Senior VP, Sharekhan.
“We already have seen that the management is saying that there is going to be a Rs 10,000 crore inflow in terms of orders for BEL and it is a debt-free company with a very decent ROE of 20-22%,” he said.
Jani said he was seeing strong visibility there and available with a decent valuation of about 15-16 times. From that perspective, this stock makes a lot of sense, he said.
(Views and recommendations given in this section are the analysts' own and do not represent those of EconomicTimes.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)
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