The Test Series between India and England starts Wednesday and prompts us to, metaphorically, take a pause from the slam-bang style of the IPL/T20 investing and shift focus on the traditionalist form of stock picking. The last few years have seen stocks in India climb up in leaps and bounds, with valuations reaching utopian proportions.
Stocks were replicating the Twenty20 spree and midcaps hitting record highs on Dalal Street like the marauding Flat Track bullies on the nearby dry Wankhede Pitch.
Things have, since, changed. Though the Nifty is at an all-time high, the situation is as illusionary as the hottest summer day in London, where just one shower can dampen the hunky-dory home mood. A deeper introspection of the scorecard exposes the top-heavy performance with the ‘limited-overs’-playing midcap specialists finding themselves confined to the drinks-carrying Twelfth Man.
The next one year or so will be a time for consolidation and require selecting players with strong secular fundamental techniques, balance sheet adaptability, earnings momentum to withstand the long sessions and the leadership acumen to reap the benefits of endurance.
It is time to bid adieu to tactics of the likes of the brilliant T20 blasters Rohit Sharma and Eoin Morgan and welcome and adopt the sagacity of purists like Pujara and Alistair Cook.
Reliance Industries: Buy | CMP: Rs 1,128 | TP: Rs 1,285 | Return: 14 percent
This oil refining giant struggled in the initial days of the white ball frenzy as it failed to channel its talents and squandered capex in exploration (and even retail).
Finding itself being side-lined by investors for a large part of this decade, RIL suddenly found its mojo in the overcrowded art of telecom (JIO) and now merits inclusion purely as a next-gen telecom all-rounder.
Though outlook on RIL’s core refining and petrochemicals business is strong, execution surprise in JIO is likely to continue offering a much higher enterprise value (EV).
Disclosure: Reliance Industries Ltd, which owns JIO, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd. Larsen & Toubro: Buy | CMP: Rs 1,310 | Target: Rs 1,626 | Return: 24 percent
Selecting this old warhorse is like picking a fast bowler who will knock off the top order on a green top in an early uptick of the investment cycle and be equally lethal with the reversing old ball in the more competitive late capex cycle.
But conditions are key and, like the dry English summer, we may need to wait for some seaming government spending signs to appear; however, there is no denying that L&T has spent time at the nets with strong cash flow focus and got fitter with divestment of the flabby non-core businesses.
Infosys: Buy | CMP: Rs 1,371 | Target: Rs 1,400 | Return: 2 percent
A return to a more conservative focus has helped Infosys carry very good form since the beginning of the year. With focus on scaling the digital business and use of AI/Automation to modernise the clients’ core as well as accelerating large deals and improving win-rate, its refreshing new look augers well.
Also, naturally gifted to play the rising USDINR bouncers, this is one player that almost selects itself. Still batting at a 25 percent discount to arch rival TCS, this Indian IT behemoth will try to narrow the valuation discount down before the season ends.
Equitas Holdings: Add | CMP: Rs 139 | Target: Rs 200 | Return: 44 percent
Completely missing from the slam-bang leagues, this rookie has been developing its game for the long run. While peers were keeping the cheerleaders dancing, Equitas focused exclusively on provisioning and clean ups.
Now for the next three years, it will be all about operating leverage as the balance sheet grows. So RoEs will head to mid/high teens; and, Tier 1 is at a whopping 27 percent. Still very cheap, it is a tailor-made player for the test game.
Biocon: Buy | CMP: Rs 586 | Target: Rs 750 | Return: 28 percent
Biocon may not be a purist in the truest sense. But, like selecting a Jos Butler or a Hardik Pandya, it makes the X-Factor list.
Biocon has established its credentials as a leading biosimilar player in global markets, with its partnership with Mylan.
Addition of US/EU revenues from the first wave of biosimilars could potentially help Biocon’s profits grow around 6x over the next five years and it, thus, makes a transition, from being a white ball swinger to becoming a red ball stickler.
Yes Bank: Buy | CMP: Rs 370 | Target: Rs 450 | Return: 22 percent
Often flashy on underwriting standards to score quickly was why Yes was initially considered to be only a limited-overs maverick. But now, being cautioned by the new selection committee and recognising its true potential to becoming an all-format, pan-India legend, its strategic shift to retail assets & liabilities remains robust.
Asset quality metrics are more normalised and Yes seems to have a much better all-round defensive and attacking game, to deliver 1.7 percent return on assets (RoA) and more than 20 percent return on equity in the medium term.
A capital raise towards the end of the year could beef up its potential for a long innings.
The rise of the T20 cult in India has been a massive economic success. But what it has also done is distracted the crowds away from traditional Test Matches. Youngsters being fed on a diet of constant action get impatient with consecutive dot balls; then how can they fathom a series of maidens?
Up to 60 percent of the capital in domestic mutual funds is only three years old. Such investors have never seen a dull session! Never seen a time when the bat and ball are engaged in a duel of stamina; where returns are not just one way up. This is the greatest challenge.
The year ahead is a time for steering the mind-set of investors, fund managers and even promoters to the Test Match rigour! Mayhap, one of the greatest ever Test Match Captains taking command of our “friendly” neighbour nation is a good omen!
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