3 themes to play on in Samvat 2073: N Jayakumar, Prime Securities

In a chat with ET Now, N Jayakumar, Prime Securities, says restructuring stories, companies de-growing their balance sheets and aviation are the three plays he would be investing in. Edited excerpts


Are the ingredients for the market in place right now?

Right now, some of the things which make a sweet spot are there. We have got size; we got scale; we got companies large, small. There is everything that you want in a proper menu. It is actually a buffet which people walk into and can pretty much pick what they want and I think for the first time if you see, the sustained flow of capital both into primary and secondary markets in terms of IPOs as well as the midcaps QIPs, etc, indicates to me that entrepreneurship is here to flourish. Stock picking has never been better. On one hand, IT and telcos are struggling, PSU banks are struggling, Reliance struggling and yet the market is close to its all-time high. So what is driving it is a good question.

Sectorally, what has happened with the good monsoon? Has rural economy got a much awaited leg-up after a gap of two years? You can see those rural economy theme stocks doing very well. Look at the numbers being posted by tractors companies for instance. What are you betting big on for the next year?

We would like to step in where angels fear to tread. For example, restructuring stories. In many of these restructuring cases, the enterprise value is 80%, 85%, 90% comprising the debt portion and these are companies in trouble where EBITDA is not up. If debt is 90% of the total and debt goes down by 30% as a result of some restructuring, that 30% actually makes the equity a four bagger because the one part of equity becomes four.

So I like to look at themes which people are not exploring. As I said, restructuring is one big play where debt compression leads to equity expansion as long as the basing business is going to survive.

Number two, I love companies which are de-growing their balance sheet as opposed to de-growing their business.

Number three, I am looking at plays like aviation for instance. Now we have got a stable oil kind of scenario for some length of time, companies have gone through ups and downs. By the way, aviation sector is the only sector where all companies including IndiGo have actually gone through negative net worth scenario even IndiGo have seen negative net worth.

Almost none of them have any working capital faculties. None of them have any banking facilities so their ROEs are very high because they just work on consumer advances. As long as air traffic is high and if you see the trend of air traffic, it has never been better in this country. So as airlines expand their fleet, expand their roads and are operating in the 80%-85% plus category, I think the airline stocks can be a huge winner.