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Published: Dec 29, 2021
Updated: Dec 29, 2021

Where to Invest in 2021?

With the two main stock market indices seemingly cocking a snook at the deadly Covid pandemic and scaling new highs, the retail investor may be lulled into thinking that any and all scrips quoted on stocks exchanges are good buys.

Nothing could be further from the truth. There is no denying that company stocks are in today’s scenario a better investment avenue than precious metals, real estate, mutual funds or bank deposits.

However, you still need to thoroughly study a company’s performance and also take into account the performance of the sector it belongs to – or else you can burn your fingers badly. Which stocks should you buy in 2021?

If it was not happening before our very eyes, it would be unbelievable! Despite the global mayhem created by the Covid-19 pandemic, the Indian stock market has contrarily turned distinctly buoyant, with leading indices scaling newer and newer highs every day. The highly popular Sensex, based on 30 pivotal stocks quoted on the Bombay Stock Exchange, has skyrocketed to an all-time high of 48,616.66 (January 6, 2021) and the Nifty, analysts’ darling index based on 50 leading stocks quoted on the National Stock Exchange, has established a new all-time high of 14,244.15 (January 6, 2021).

Whatever be the intriguing factors responsible for this unprecedented bullish phase during 2020, the question making the rounds in trade, market and investor circles is: What is the outlook for the Indian stock market during 2021? What should investors do in the new year? Whether one sees it as a pre-Covid or post-Covid period, one thing is certain — during recent years, equities have emerged as the best investment avenue at home as well as abroad. Precious metals like gold and silver have scared the investing public on account of the violent fluctuations in market sentiment and prices. Real estate has lost its momentum on account of the pandemic. Mutual funds have not moved despite the huge and aggressive publicity propaganda undertaken by MF companies. Paintings and art in general have yet to be seen as a popular investment avenue. Fixed deposits have lost their credibility and in view of the falling interest rates, investors prefer to keep bank deposits to a minimum.

Equities, in these circumstances, have emerged as a preferred investment avenue. Dematerialisation of stocks, SEBI regulations in favour of investors, the growing interest of foreign investors in the Indian stock market – all these have meant that India has emerged as a preferred investment market for hundreds of FIIs and FPIs from centres like the US, Europe, Mauritius, Hong Kong and Singapore.

But investing in the stock market is not a child’s play. One has to select the right scrips or else face heavy losses. That is why, by and large, people prefer to keep away from stocks, considering them very risky. And it is a well-known fact that many investors who have played the stock market have lost their everything and ended up in dire distress.

FAKE NEWS HUB

The stock market is the kind of place where an investor is tempted to indulge in speculation, seeing that some people become millionaires on account of huge speculative gains. But all investors are not that fortunate.

Genuine investors should think several times before selecting stocks. In order to avoid risk, one has to keep a cool mind and go for the right stock which can multiply his/her investment. The stock market is a notorious place where bogus news is spread in the form of ‘tips’, ‘expert advice’, ‘research reports’, etc.

If you really want to make money in the stock market, you must study some basic rules of successful investing. Instead of running for quick money, an investor should prefer reasonable returns by investing in the right stocks with a long-term perspective.

While selecting a stock, an investor should examine the company whose stock he/she is buying. Management of a company is a crucial parameter for the selection of a stock. If the management is not honest and does not care for virtues like integrity, the stock will not yield the returns expected by an investor even if the company is in a good line of business.

RISK REDUCTION

Every investor in the stock market wants to make a lot of money. But this is not always certain. An element of risk is always there. But intensive study and quick decisions can help immensely; investors should aim at maximum profits and minimum risk. And this is possible if you study the target scrip properly, read/listen to suggestions of experts, and take an informed decision.

All said and done, the Indian stock market is today the number one investment avenue. In order to select a stock, you should study the company concerned since the performance of the scrip is after all directly linked to corporate performance. Again, one should remember that a company which is part of a sector will most certainly be impacted by the outlook of that sector.

Blue Chips: These are stocks issued by financially sound, well-managed and fundamentally strong corporate entities with a humongous market capital and an enviable market reputation. The best blue-chip shares are usually stocks of the bellwethers and trail-blazers currently occupying the highest ranks of any industry

A hampered economic scenario and the uncertainty which lies ahead for investors, coupled with the prevalent risk aversion among market participants, have all brought back the interest of many market participants in blue chips. Given that these quality companies are more resilient to economic downturns, they may continue to grow or operate profitably even during adverse market conditions. Therefore, good amounts of an investor's portion should always be allocated to blue chips in order to cushion hisr portfolio during difficult times.

We have chosen Hind Unilever, TCS, Infosys, Reliance Industries, Bharti Airtel, ITC, Nestle, HCL Technologies, Titan, Britannia Industries, HDFC Bank and ICICI Bank - all shares with high growth potential.

These are companies which are on the threshold of entering the list of blue chip companies - they are growing rapidly and will shower rich returns. We have selected Supreme Industries, the number one plastic processing company, Kotak Mahindra Bank, the fast growing bank led by shrewed financial expert Uday Kotak, Polycab India, Coromondel International, Alembic Pharmaceuticals and Huhtamaki PPL.

Hidden Jewels: There are many very good companies, with remarkable growth potential but not much known in the market. Such companies are available at a lower valuation as they are not well-known among investors. Needless to say, investment in such scrips is relatively highly profitable. We have selected APL Apollo Tubes, Meghmani Organics, HBL Power System, DIC India, Swelect Energy, Tata Steel BSL, Caplin Point Labs and Dixon Technologies.

Here goes the list, from which you can select stocks according to your preference. Happy investing.

Tata Consultancy Services

CMP -  3052.95
52 WEEK HIGH /LOW -  3115/1504
BV -  251.40

Tata Consultancy Services Limited (TCS) is an undisputed leader among Indian players in the global information technology and IT-enabled services outsourcing segment, and it has a diversified and growing client base with a wide range of services offered and scalable operations. TCS operates with a strong financial profile which is characterized by healthy revenue growth, recurring cash accruals and strong liquidity in the form of free cash reserves. The company has been able to maintain a presence across diversified verticals and has a solid execution track record, which has aided it to build scale.

The company's major verticals -- banking, finance services and insurance -- reported subdued growth of 5.4% vs 19.70% yoy (as of March 31, 2020) which was on account of lower spending by large banks across North America and the UK. TCS has demonstrated the ability to structure and execute large-scale projects globally, enabling it to continually garner marketshare over its competitors in the past five fiscals. It has a large, diversified and growing client base with meaningful incremental addition of clients in the above $ 20 million, $ 50 million and $ 100 million buckets from previous fiscals and its superior execution ability has resulted in high repeat business, which provides stability to the revenue stream.

The financial profile of the company remains robust, which is reflected in high operating profitability of 26.80%, a strong capital structure and a robust liquidity position in the form of a strong cash and equivalents balance of Rs 9,666 crore as on March 31, 2020. The company' attrition rate in IT services, at around 12.10%, is the lowest in the industry globally. Companies across the globe are spending more on initiatives built around digital technologies to drive business outcomes and this has slowed down revenue growth of IT players from traditional outsourcing businesses.

Infosys Technologies

Face Value -  05
CMP -  1281.60
52 WEEK HIGH /LOW -  1303/511
BV -  157.10

Is Infosys heading back to its glory days? It seems happy days are here again for shareholders of Infosys. If the way in which the IT major is performing is any clue, it seems that even though its halcyon days in Narayana Murthy's time may not return, the company will continue to be efficient, well-managed and financially robust.

Moving with the times, the company today offers a wide range of IT services, including cloud, analytics and IoT products. It is an established player in verticals like financial services, retail communications, energy and utilities, manufacturing, hi-tech and life sciences. The company is a popular and respected IT service provider in North America, a region which contributes over 60 per cent of its revenues.

According to Salil Parekh, Managing Director, the company's objective is to expand its business in the US, which is the biggest market for the Indian IT industry. "As per our plan, we will recruit 12,000 US employees during the next two years. The company's aim is to build a business model which is more and more resilient for the future and which can work under most scenarios within the US system," he says.

As regards the first half of the fiscal, Mr Parekh says that revenue during Q1 grew at 1.5% yoy in constant currency terms. Digital revenue grew at 25.5% and now accounts for 44.5% of revenue. The company delivered 22.7% operating margins, which is an expansion of 220 basis points yoy and 160 basis points sequentially. This was achieved after rewarding employees with higher variable pay. Large deal wins were at $ 1.7 billion for the quarter.

MASSIVE RESERVES

The company is marching ahead on the financial performance front. During the last five years, its sales turnover has expanded from Rs 53,983 crore in fiscal 2016 to Rs 79,047 crore in fiscal 2020, with the net profit advancing from Rs 12,693 crore to Rs 15,543 crore during the same period. The company's financial position is very strong, with reserves at the end of March 2020 standing at Rs 60,105 crore as against the equity capital of Rs. 2129 crore, that too after as many as eight bonus issues.

The company's policy is to return 85% of free cash flow to shareholders over a 5-year period from FY20, post keeping aside cash to fund its internal capex and opex needs. The IT major has also become active in M&As, acquiring 2 firms recently. We believe this is a positive indicator of improved cash usage, which has boosted RoE 350 bps over the last 3 years to 25.5%, and is likely to keep the IT major's PE multiple at elevated levels.

Realising that digitization is the order of the day, Infosys has aggressively realigned its strategic focus to scale digital transformation projects over the past couple of years. This includes significant investments in sales, increased large deal participation, and increased flexibility on deal structure. The move has been rewarded with a sharp increase in large transformation deals around digital projects, hybrid cloud adoption and automation. While key drivers like IMS or Enterprise Resource Planning (ERP) at the start of the last upcycle contributed less than 10% to revenues, new emerging drivers like cloud and digital already contribute nearly 50%. This should help Infosys capture larger benefits in the next phase. Given the investments made, it should close the gap in revenue growth vis-à-vis its peers in the coming year.

The company is going to scale new highs in sales, earnings and returns to shareholders. An excellent investment pick for 2021.

Hindustan Unilever Ltd

Face Value -  01
CMP -  2390.35
52 WEEK HIGH /LOW -  2614/1756
BV -  199.30

Hindustan Unilever Ltd (HUL) is one of the largest Fast Moving Consumer Goods Companies in India with a heritage of over 80 years. Five of its brands generate an annual turnover of over Rs 2,000 crore each and 7 brands generate over Rs 1,000 crore each. The company caters to a variety of products which include foods, beverages, cleaning agents, personal care products and water purifiers. A few famous brands have high visibility and sustained market leadership, which is backed by an extensive distribution network and a strong advertising and marketing campaign.

HUL has been leveraging its distribution strengths to adapt its channel strategy for its products and market segments. On a consolidated basis, the financial risk profile is supported by strong net cash accruals and no outstanding debt. The company has ample liquidity, which is indicated by cash and bank balances of Rs 5,113 crore as on March 31, 2020. The company is known for its aggressive dividend payout policy which is in the range of 75-83%.

The Indian FMCG industry consists of both organised and unorganised players across segments and products, and HUL continues to face stiff competition with the entry of new players, including multinationals, in all its major segments such as soaps and detergents, personal care products and packaged foods. However, HUL's strong financial risk profile and its leading position in the domestic FMCG industry would help maintain its leadership position and tide over any economic slowdown/ crisis.

Reliance Industries

Face Value -  10
CMP -  1914.15
52 WEEK HIGH /LOW -  2369/867
BV -  967.50

Reliance Industries (RIL), the flagship company of the Mukesh Ambani-headed Reliance group, is the largest private sector enterprise in India. RIL has a highly integrated nature of operations with a presence across the entire energy value chain. It has diversified revenue streams, massive scale of downstream businesses with one of the most complex refineries, an established leadership position in the petrochemical segment along with a strong financial risk profile characterized by robust capital structure, stable cash flows and a healthy liquidity position. RIL's telecom arm, Reliance Jio, is the largest operator in the country in terms of subscriber base, with approximately 39 crore subscribers. The company has been able to create a strong market position in the organized retail sector and has announced various steps to reduce its debt on a consolidated level.

The market was worried about the huge debt under which the company was laboring. But Mr. Ambani recently announced investments by strategic investors in the Jio platform and the retail platform, along with a rights issue to wipe out the debt and to improve its financial risk profile going forward. During FY20, margins of key petrochemical products have decreased due to the muted demand scenario, a capacity glut and volatility in crude prices. Despite a significant reduction in product margins, the EBIT margin of the petrochemicals segment stood at 17.6% vs 18.8% yoy, primarily due to integrated operations as well as feedstock flexibility between ethane, naphtha and off-gas which is a by-product of its own refinery.

Further, during the year, the total consolidated revenue of the company increased by around 6%, primarily on account of higher revenues from the consumer businesses. RIL has been able to consistently maintain a healthy capital structure. As on March 31, 2020, its consolidated overall debt to equity ratio stood at 0.77x as compared to 0.78x as on March 31, 2019. Diversifying and gaining a leadership position in digital services and its foray into the organized retail sector have reduced the overall inherent cyclicality risks due to its O2C and petrochem business. In view of the restructuring of its businesses, the company has become an all the more attractive investment pick.

Kotak Mahindra Bank

Face Value -  05
CMP -  1970.65
52 WEEK HIGH /LOW -  2027/1000
BV -  398.30

Uday Kotak-led Kotak Mahindra Bank is one of India's leading financial services conglomerates, providing a wide span of various financial and banking solutions with a reach of 1,600 branches and 2,519 ATMs across India. It has emerged as a player that has adopted a prudent and cautious approach, targeting only high-rated customers and sectors. This aided the bank's low levels of bad loan formation over the years (Net NPA at 0.71%).

This banking behemoth has managed to achieve NIM and profit CAGR of 23% and 24% respectively in 5 years, and has managed to grow advances at 29% CAGR in 5 years. The bank's deposit franchise continues to be granular and robust, with deposit accretion staying healthy with an industry leading CASA ratio of 56.20%. Kotak Bank has maintained its cautious stance towards unsecured retail, credit cards and small business lending. The bank's 70% advances are given to corporates and business, home loans & amp, LAP and the agriculture segment, with the corporate and business division having the highest exposure of nearly 40%.

Supreme Industries

Face Value -  02
CMP -  1797.45
52 WEEK HIGH /LOW -  1817/791
BV -  194.90

From a tiny cottage unit grossing sales of just a couple of lakh rupees during a period of over seven decades to the numero uno player in the plastic processing space, with a sales turnover of around Rs 5,600 crore, is the fascinating story of Supreme Industries. Built brick by brick by visionary entrepreneur Mahavir Prasad Taparia, its success is all thanks to his grit and determination, sharp focus and innovative approach. What is more, the thorough gentleman and strict believer in ethical corporate governance that he is, Mr Taparia has created a high level of confidence among the company's stakeholders and customers.

Supreme has gone from strength to strength in all these years. During the last 10 years, sales expanded from Rs 2,666 crore in fiscal 2010-11 to Rs 5,671 crore in fiscal 2019-20, while the profit at net level spurted from Rs 174.01 crore to Rs 496.40 crore during this period. The company's financial position is very strong, with reserves at the end of March 2020 standing at Rs 2,107.18 crore -- almost 83 times its tiny equity capital of Rs. 25.41 crore.

After seven bonus issues in its existence -- the last being in the ratio of 1:1 in 2006 -- the company has not made any fresh bonus issue. However, it has been paying handsome dividends, the rate for the last year (2019-20) being 700 per cent!

Prospects for the current fiscal were hit by the Covid-19 pandemic and the consequent lockdown from April 2020. However, after a month, the situation started improving on the lockdown front and the company recovered fast, indicating that its performance during the current fiscal will be quite satisfactory.

NEW FOCUS

Going ahead, the outlook is all the more promising. The company has made a significant change in its market strategy -- to steadily reduce the production of commodity plastics and increase the production of value-added products, which has started paying dividends in terms of an upward march of profit margins. Again, the policy of multiple production facilities (25 at this juncture) has been saving the company substantially in transportation costs.

The company is in an expansion mode. It plans to commit investment of Rs 3.5 bn in FY21, including carried forward committed capex of Rs 1.8 bn from the previous year. With a view to setting up a greenfield plastic piping complex at Odisha, it plans to purchase 30 acres of land.

The drawings of various equipment to put up a cross plastic film project at the adjoining land to the composite cylinder plant are under preparation in Romania and Switzerland. Due to the Covid-19 lockdown and the resultant impact, the process is taking more time to be finalized. The company intends to move expeditiously once the working drawings are frozen. It could also sell inventory of a premise in hand at Supreme Chambers and realize Rs 25.60 crore. Further, it has divested its interest in a joint venture, Kumi Supreme India Pvt Ltd, and has realized Rs 24.32 crore during financial year 2019-20.

The company is continuously working to increase its market reach by closely monitoring its presence at the tehsil and district level and increasing its channel partners and retailers. The active channel partner strength of all its divisions put together stood at 3,567 as of March 31, 2020. By August-end, that figure went up to 3,838.

Analysts feel this is the time to re-rate the stock. In fact, mutual funds have started adding the stock to their portfolio. The company is on a sustained growth path and the scrip is worth including in the portfolio of discerning investors.

HCL Technologies

Face Value -  02
CMP -  977.75
52 WEEK HIGH /LOW -  998/375
BV -  208.60

Even though HCL is a broad-services company, a large part of its focus is on cloud migration and infrastructure management. Over the next couple of years, we will see a lot of spends being done on these areas by the company. The company's portfolio is relatively insulated vis-à-vis its peers as it has a lower exposure to verticals like travel, energy and hospitality and a higher exposure to low-impact verticals like BFSI, healthcare and technology. Moreover, it has a large exposure to IMS (resilient service line) where it has strong partnerships and capabilities that can enable it to capitalise on opportunities in cloud migration and network security.

Its performance chart keeps climbing. During the last five years, sales turnover has shot up two and a half times - - from Rs 13,435 crore in fiscal 2016 to Rs 32,606 crore in fiscal 2020, with the profit at net level shooting up from Rs 4,719 crore to Rs 8,969 crore. The company's financial position is extremely sound, with reserves at the end of March 2020 standing at Rs 36,753 crore as against the equity capital of Rs 543 crore, that too after three bonus issues -- in 2006, 2015 and 2019 -- all in the ratio of 1:1.

BETTER THAN RATINGS

HCL is doing even better in the current year, having reported decent growth in the second quarter with revenue increasing by 4.5% sequentially in constant currency -- a step ahead of Street estimates. Its 6.4% sequential increase in dollar revenue compares well with its peers. The recovery in IT spends and deliveries is visible with all the verticals doing well. The main vertical of IT and business services grew 4.9% sequentially. Revenue growth is also broad-based across geographies.

Deal wins remain high, with the company striking some 15 of them in Q2. HCL Tech also retained its guidance at 1.5-2.5% for the coming quarters, despite the sharp growth in Q2FY21. The company's margin improvement is encouraging, given lower direct costs and higher offshoring gains. The firm's EBIT (earnings before interest and taxes) margins stood at 21.6% in Q2, up 110 basis points sequentially.

Some of its verticals have been able to command higher margins. Besides, cost control due to the pandemic -- such as in travel expenses -- is also aiding margin expansion. The company's 110 bps sequential margin expansion was driven by a 103 bps sequential margin expansion in IT services and a 350 bps sequential margin expansion in engineering and R&D services, possibly due to the revenue recovery in this segment. Outsourcing costs were stable sequentially and other expenses fell. These two combined accounted for about 90 bps sequential margin expansion.

HCL Tech has also raised its margin guidance for the coming quarters. Its improved guidance of 20-21% as against 19.5-20.5% shows that some of the cost control modes are sustainable. Besides, it also lowered its working capital requirements and saw higher cash flow generation.

The prospects ahead are all the more encouraging. Discerning investors will do well to include these shares in their portfolio.

HDFC SECURITIES

10 stocks to bank on in 2021

India was severely hit by the Covid pandemic and the resultant lockdowns. Indian markets saw a sharp fall in March 2020 and then a gradual recovery which has brought us to all-time highs. With many broad market indices already surpassing pre-pandemic highs in 2020, many investors are asking whether it’s too late to buy. Analysts at HDFC Securities think there are still plenty of opportunities, both in catch-up plays and in structural winners, to continue reaching new highs. Here are the top stock picks by HDFC Securities for 2021.

Bandhan Bank

Bandhan Bank is India’s largest MFI company with a 20%-plus marketshare across India and a 50%-plus marketshare in the East and the North-East. It has consistently demonstrated a strong track record in growing its balance sheet/earnings (AUMs grew by CAGR of 44% through FY10-20). “In the next five years, it aims to transform itself into a one-stop solution for all banking requirements of midand low- income group customers,” says the HDFC Securities report.

Birla Corporation

It has a 4.2% marketshare in the Indian cement industry. The company has finalised a plan to scale up its capacity to 25 mtpa by 2025 from the current capacity of 15.6 mtpa, which provides strong visibility of future growth.

GAIL

GAIL is planning expansion in petrochemicals, specialty chemicals and renewables to supplement growth in its core business of natural gas marketing and transportation. Apart from this, it plans to invest more than Rs 45,000 crore over the next five years to expand the national gas pipeline grid and city gas distribution network.

HPCL

HPCL plans to invest more than Rs 60,000 crore in the next five years to build and develop infrastructure, including the implementation of significant projects such as capacity expansion at its refineries, expansion of its pipeline network and setting up of new pipelines. Any development on the divestment front for BPCL could lead to a rub-on effect on HPCL’s valuations.

Hindustan Unilever

HUL is a market leader in multiple FMCG categories and has the widest distribution reach with 7 million-plus outlets. The company is debt-free and cash-rich (~Rs.5113 crore cash as of FY20) after recent acquisitions of GSK’s consumer business. We expect substantial synergy benefits to play out in the next 2-3 years. In H1FY21, the company has launched 100-plus SKUs in the hygiene category, which along with the company’s other health and nutrition brands, forms 80% of the portfolio that has seen 10% growth. The stock price has remained muted. Earnings may surprise on the upside, and the stock could get re-rated gradually.

Infosys

Infosys announced large deal wins with a total contract value of $ 3.15 bn, which is the highest ever recorded in Q2FY21 (includes a mega-deal with Vanguard) — 16 large deal wins were reported in Q2FY21. The IT deal pipeline has been continuously improving despite cost-cutting and cash conservation measures by clients. Infosys’ financial profile is robust, led by a debt-free balance sheet and healthy cash-generating ability in the past. Financial flexibility is strong, supported by robust liquidity in the form of cash and cash equivalents of Rs 26,011 crore as on September 30, 2020.

NAM India

NAM India is one of the largest asset management companies in the country. Given that India is massively underpenetrated, there is enough scope for AMCs like NAM to continue to expand profitably. There is increasing acceptability of the Nippon brand by Indian investors. The fund management business has high operating leverage, which will continue to aid profitability.

ONGC

The recent rise in crude oil prices and the expected uppishness therein is not fully reflected in the current valuations of ONGC. ONGC’s average capex (standalone) per annum has been in the range of Rs 30,000-32,000 crore with about 23-25% expenditure on development drilling, 23- 25% expenditure on exploration drilling, 38-40% expenditure on capital projects and the balance of 10- 12% on surveys, R&D, integration and JVs. ONGC’s acquisition of a majority stake in HPCL is a defining move -- one that significantly transforms its downstream portfolio. HPCL will provide the company a pure-play refining and marketing edge with an extensive retail presence across the country, entailing significant diversification benefits.

State Bank of India

SBI is almost immune to any liability-side risks at this juncture, given its expansive, granular deposit base and the government’s majority holding. It is better placed to deal with asset quality worries than many other large banks because of the quality of its loan book. Asset quality worries seem to be overblown. All the segments of SBI, including insurance, asset management, credit cards and various other services are performing exceptionally well and adding substantial value to the bank’s valuation.

Sun Pharma

Sun Pharma is the largest Indian pharma company that commands ~8.2% marketshare in the Indian market. The company has 31 brands among the top 300 brands in IPM. It is ranked No.1 in CNS, Cardiac, Orthopaedic, Dermatology, Nephrology and Urology in the domestic market. Sun Pharma has made ~ Rs 12,600 crore worth of cumulative R&D investments over the past six years (FY15-20), which bodes well. It has earned ~ $ 410 mn in revenue from the global specialty business in FY20.

Themes for investing in 2021 - Samir Arora

So most of the time we do not change our three main themes. These three themes are : a) We like companies competing with government which these days means private sector banks; b) We like consumers and consumption because this is the theme that has worked globally and is working even now after whatever number of years others might be ahead of us; c) For the last10-20 years, globally it has been technology and for us it is IT — which is the poor man’s technology — and some pharma and a little bit of some speciality chemicals for the last few years. You can’t start every year thinking that I am going to buy this and I am going to buy that. If at all that has to be done, you do that with these additional 5-6 stocks — 2-2.5% each where you can be diversified. It could be rural play next year, it could be continuation of people going online, PLI schemes or some new things that will come up which you are not doing today. You cannot start a new calendar year wiping out everything old and starting from zero. If we look at the Fortune Forbes billionaire’s list, if we look at the biggest companies in the US, the most successful companies in the last 15-20 years have come from three-four themes. They come from financials, consumers and technology. The rest you rent for a year or two. Some of them may qualify to be held for longer but they are not things that make most of your money. Most of the money is made from the backbone of the fund, which are the same old themes every year, and for 25 years they have worked for me at least.

Q: There have been certain pockets of consumption where we are already starting to see signs of a strong rebound. What is exciting you?

Samir Arora: In the last one year, people have not spent money on services, they have not gone out, they have not gone travelling, they have not gone to hotels and they have been mostly forced to stay at home. They have either chosen that they want to change things in the house or they want to change the house itself because they feel that it is better to live life one time. Whatever be the reason, it has been a global phenomenon. In Singapore, in the US and in India, real estate has picked up, and particularly residential demand has gone up. We do not have a pure real estate company, but we have housing finance companies where one spends money upgrading the house and buying consumer durables, refrigerators, bigger TVs. This theme is currently attractive to us except that we have not just bought a pure real estate company.

Q: Where do you stand when it comes to platform companies or specialty chemicals which have been big wealth generators?

Samir Arora: We include specialty chemicals along with tech and pharma as cost advantage factors, which means basically that there is an India-wide advantage. That is part of our theme. We are 6-7% in specialty chemicals. Platform companies are loosely defined because people generally like to use the platforms, because it makes people feel this could be the next Google or Amazon. We own one or two companies but a platform company basically means that the company is only providing the platform and buyers and sellers meet on their own and go away on their own. When you need a large sales force, when you need to go and actively sell, you may call it a platform company up to a point. We have one of these IT companies, or whatever tech companies, taking people online in the MSE sector and the smaller customers and smaller buyers and sellers. Calling it a platform company is a big name for a small company, but there are no platform companies in India. Platform companies mean buyers and sellers meet on their own like in a Google or in a Facebook, and stuff like that.

Q: UltraTech, Hindalco, the Adani group have announced capexes. Should markets start looking at very inward-looking stories — be it steel, cement, engineering or industrials?

Samir Arora: They could but we would not. The way to look at it is to be able to hold on to stocks in bad times. To do that, you must have a starting conviction which is beyond some big picture line that China is growing and Australia is exporting there and Brazil has some problems. For me, it is difficult to become convinced about these very big picture topline, headline macro-type issues. Some people who do macro investing may become convinced of these things. For us it does not work. We will mostly come in when it is too late and we will panic at the first negative news on these things. For example, we do not even like the auto sector. Some people will say this company has grown 25% and some other 30%. That may be true but it also depends on what stock we bought during that time and maybe that went up 30%, or a little less or little more. We do not have to compare everything to zero and say ‘Oh my God if I do not buy this stock, this will go up 25%’, because we know that if that stock has to go up 25% there will be 50 other stocks that have to go up plus/minus the same and we would rather buy something where we feel that the longer-term prospects are not being disrupted, that there is something that we believe in. So we will never buy these Hindalcos and cement companies because we have never done it and we seem to have done well, so we are happy with our own convictions.

(Mr. Samir Arora is a renowned financial expert and founder as well as fund manager at Helios Capital Management Pte. Ltd., Singapore.

Market is overheated: A fall is imminent - Amit Mehta

“No doubt it was an unprecedented sartorial boom in the stock market, that too during a pandemic that had administered a body blow to the global economy and human lives. Popular indices led by the Sensex and the Nifty zoomed to new all-time high levels. But I now feel, on the strength of my rich experience of a score of years in the stock market, that this is an over-heated market and a noticeable reactionary fall is imminent any time,” maintains Amit Mehta, stock market expert and Managing Director of the KA group of financial companies.

Known as the ‘Warren Buffet of Surat’ in his friends’ and clients’ circles, Mr Mehta suggests that “this is the time for profittaking and not of fresh buying.”

Pointing out that “an investor needs to assess the position of the company in the supply chain of its industry and whether it can generate enough value between its inputs and outputs to fuel growth,” Mr. Mehta adds, “It is the value of the manufacturing and marketing processes that a company uses to convert raw materials into a finished product — that it sells under its brand name to the final consumer – that adds value to the product/service it sells. For example, oil marketing companies usually don’t have a large mark-up over their oil prices —which are highly correlated to global prices and government regulations — thereby making it a volume game and not one that adds much value on a per unit sale. A company’s profitability increases as it moves up the value-addition chain.”

‘EQUITY STAYS KING’

However he admits that during 2021, the stock market will remain the major investment avenue. If one selects the right scrip and buys it with a long-term perspective, he is bound to emerge richer. His advice: Wait for a reactionary fall and accumulate the following stocks at every decline.