Corporate Grapevine

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

Market rises above Covid ruins

Where to invest in Vikram Samvat 2078?

All other segments of the Indian economy have faced the wrath of the Covid-19 pandemic over the last two years, but not the Indian stock market. On the contrary, the pandemic has ironically provided a huge boost to the market as other segments of the Indian economy have tottered and huge amounts of cash have flown into Indian corporate stocks, even scrips which were non-performers till recently. All have contributed to this unprecedented bull run, including FIIs and FPIs, the ordinary Indian retail investor, and government measures like 'Atmanirbhar Bharat Yojana', the PLE Scheme and privatization plans for public sector enterprises. NO wonder then that a market veteran like Deven Choksey has labelled the current phase a 'golden era' of equity investment. Where will it go during the Vikram Samvat 2078 particularly when the top market investor of the globe today Warren Buffet has warned that Indian market is overvalued?

Like an Achilles without the vulnerable heel, the Indian stock market has emerged unscathed and even victorious in the last two years that were monopolized by the deadly Wuhan virus.

Many people must have thought that after the breakout of the pandemic that shook the entire world, the Indian market would witness a steep, unprecedented crash in stock prices. On the contrary, the Indian stock market made history by crossing milestone after milestone during the last two years.

The major market indices skyrocketed to all-time highs which no one could have imagined even in their wildest dreams.

The Sensex, based on the prices of 30 pivotal stocks quoted on the BSE, reached Himalayan heights of 60,000, while analysts' favourite Nifty, calculated on the prices of 50 leading stocks quoted on the NSE, surpassed 18,000. The BSE mid-cap index zoomed to gain 75 per cent while the BSE small cap index shot up by 94 per cent. Sectorwise, the BSE metals index spurted by 156 per cent, BSE realty by 125 per cent and BSE power made a powerful statement with 115 per cent.

Amazingly, even as the pandemic was cutting a deadly swathe across the country with overcrowded hospitals and rising fatalities, the Indian stock market continued to be showered with funds from domestic institutions, retail investors and foreign investors. FIIs and FPIs are reported to have pumped in over Rs 66,000 crore in equities during this period. Just as incredibly, while millions of jobs were lost, thousands of SMEs shut shop and the GDP degrew by 7.3 per cent in fiscal 2021, the stock market was cushioned by all the mayhem around it and continued to see stock prices reach new highs, with hundreds of stocks which were hitherto in two or three digits entering the four-digit space.

The unprecedented bull run in the stock market was aided to no small extent by government measures like 'Atmanirbhar Bharat Yojana', the PLE Scheme and privatization plans for public sector enterprises. India emerged as a hot spot for investors at home as well as abroad, prompting a market expert like Deven Choksey to comment that India had entered a 'golden era' of equity investment.

GOLD, FDs LOSE SHEEN

Incidentally, while the stock market was booming, other investment avenues lost much of their sheen. Realty, precious metals like gold, silver and platinum, paintings, corporate fixed deposits - all were in the dumps and funds which could have come their way in earlier times started flowing into the stock market.

Banks too were unwittingly responsible for the stock market boom as they reduced interest rates, prompting money-conscious Indians to shift their savings from banks to the stock market. In this scenario, even the stocks of weak and loss-making companies started quoting at unbelievably high prices.

All this has led to a widespread belief that equity is the best investment avenue today. This belief emerged during the pandemic era and continues to prevail even as the impact of the pandemic is waning. As Diwali approaches, moorat trading is set to begin and savvy Indians are busy figuring out where to invest in the new Vikram Samvat 2078. Thousands of stock market investors have already minted money in these last two years, and now those who were not as quick on their feet are feverishly searching for suitable equities in which they can invest in the new year.

ALARM BELLS

However, experts have sounded the alarm over the runaway rise in Indian stock prices. Renowned global investor Warren Buffet has warned that Indian stock prices have been overvalued. Many research analysts have predicted a widespread crash in prices as the current sky-high levels are difficult to sustain. In fact, during the last one week, stock prices have started attracting selling, pushing down the prices - albeit at a slow pace.

In these circumstances, the question before investors is on where to invest in Vikram Samvat 2078. After analysing the actual market trends of late, it has become clear that there are certain segments which are doing very well and some of them have even brighter prospects ahead. As the stock market is unpredictable, to be on the safe side investors should invest in select stocks in growth-oriented segments. Keeping this in mind, we have selected stocks based on various segments which should be picked up for investing in the new Vikram Samvat with a long-term perspective so as to reap a rich harvest.

(A) I.T. ON A ROLL

One of the unforeseen side effects of the disastrous Covid-19 pandemic is that it has turned into a booster for the IT sector as global and domestic demand for, and expenditure on, online services have skyrocketed. With digital being the new IT mantra, India has emerged as a global sourcing hub, accounting for more than half the $ 250 billion global services sourcing business in fiscal 2020 and claiming an even bigger share in fiscal 2021.

We feel the IT industry has tremendous growth prospects going ahead. Over a dozen companies in the sector are going to perform very well, and these include HCL Technologies, Tech Mahindra, TCS, Hinduja Global, Mind Tree, Wipro, Persistent System, in which one's surplus investible funds can be profitably invested in the new VS year. But we specifically recommend three promising stocks which can yield remarkable returns in the new year. These are:

(1) Infosys Technologies
FACE VALUE 05
CMP 1668.60
52 WEEK HIGH /LOW 1849/1051

(2) Happiness Minds Technologies
FACE VALUE 02
CMP 1271.85
52 WEEK HIGH /LOW 1581/285

(3) L&T Infotech
FACE VALUE 01
CMP 6679.35
52 WEEK HIGH /LOW 7155/2828

(B) ELECTRIFYING TATA

The illustrious industrial house of the Tatas is very much in the news these days, and for good reason. The group's head honcho, N Chandrasekaran, is busy devising strategies to take the group companies to even higher levels. For example, the group has decided to move into the electric vehicle segment in a big way and use the synergies of several group companies. The group IT companies -- TCS, Tata Elexi and Tata Technologies -- will look after automotive software, designs and technology for the EVs. The group power company, Tata Power, will build infrastructure for the power-charging network. Tata Electronics will manufacture high-tech electronics components, the group's finance companies Tata Capital and Tata Motor Finance will look after vehicle financing, and the group's insurance company Tata AIG will take care of the insurance aspect.

At the same time, all the group companies will chalk out expansion programmes to push up the pace of growth. While VS 2078 will see rapid growth of most Tata group companies, we strongly recommend the following three companies for a highly profitable investment.

(1) Tata Motors
FACE VALUE 02
CMP 483.75
52 WEEK HIGH /LOW 533/130

(2) Tata Elxsi
FACE VALUE 10
CMP 5871.00
52 WEEK HIGH /LOW 6610/1452

(3) Tata Power
FACE VALUE 01
CMP 214.25
52 WEEK HIGH /LOW 270/51

(C) SPECIAL CHEMISTRY!

The speciality chemicals segment is very much in the news as the China-plus one policy stance adopted by leading American and European companies has opened the door for the rapid growth of Indian companies which are in a position to supply high-quality speciality chemicals, that too at competitive prices as India is a cost-effective country for chemicals and pharmaceutical companies. For VS 2078, we recommend the following 4 speciality chemicals companies.

(1) Deepak Nitrite
FACE VALUE 02
CMP 2231.35
52 WEEK HIGH /LOW 3020/705

(2) Alky Amines
FACE VALUE 02
CMP 3605.40
52 WEEK HIGH /LOW 4740/1138

(3) Laxmi Organic
FACE VALUE 02
CMP 458.10
52 WEEK HIGH /LOW 629/143

(4) Aarti Industries
FACE VALUE 05
CMP 964.30
52 WEEK HIGH /LOW 1169/494

(D) BANK ON BANKING

Banking and finance companies will play a significant role in economic development during the new Vikram Samvat as the economy, hit hard by the pandemic, will be on the path of recovery. We recommend the following three companies for investment.

(1) ICICI Bank
FACE VALUE 02
CMP 802.30
52 WEEK HIGH /LOW 860/388

(2) Kotak Mahindra Bank
FACE VALUE 05
CMP 2032.25
52 WEEK HIGH /LOW 2253/1519

(3) IDFC First Bank
FACE VALUE 10
CMP 49.55
52 WEEK HIGH /LOW 70/29

(E) BON APETIT, FMCG

As India is coming out from the clutches of the pandemic and the economy is on the path of recovery, incomes of people will be on the rise. With rising consumption, prospects for FMCG companies will improve considerably during the new year. We recommend the following four scrips.

(1) ITC
FACE VALUE 01
CMP 223.30
52 WEEK HIGH /LOW 266/163

(2) Hind Unilever
FACE VALUE 01
CMP 2393.95
52 WEEK HIGH /LOW 2860/2043

(3) Nestle
FACE VALUE 10
CMP 19002.00
52 WEEK HIGH /LOW 20600/15900

(4) Britannia Industries
FACE VALUE 01
CMP 3670.00
52 WEEK HIGH /LOW 4153/3317

(F) PROMISING PIVOTALS

There are certain pivotal scrips which are heading for further growth in the new year. We have selected these three scrips for investment in VS 2078.

(1) Reliance Industries
FACE VALUE 10
CMP 2537.60
52 WEEK HIGH /LOW 2750/1830

(2) Tata Steel
FACE VALUE 10
CMP 1316.65
52 WEEK HIGH /LOW 1535/395

(3) Larsen & Toubro
FACE VALUE 02
CMP 1766.80
52 WEEK HIGH /LOW 1885/920

WAIT FOR CORRECTION

Of late, there has been a tremendous spurt in stock prices on account of a heavy inflow of funds into the market, but there could well be a reactionary fall in prices. Hence, discerning investors should wait for a drop in prices and accumulate these stocks at every major decline.

Govt policies will keep market buoyant - Dr VVLN Sastry

Dr VVLN Sastry: India has emerged as the fastest-growing major economy globally and is expected to be one of the top three economic powers in the world over the next 10-15 years, backed by its robust democracy and strong partnerships. India is the fourth largest unicorn base globally, with over 21 unicorns collectively valued at $ 73.2 billion as per the Hurun Global Unicorn List. By 2025, India is expected to have 100 unicorns and will create 1.1 million direct jobs, according to the Nasscom-Zinnov report of Indian Tech Start-ups. According to data from the Department of Economic Affairs, as of August 27, 2021, foreign exchange reserves in India reached the $ 633.5 billion mark.

With an improvement in the economic scenario, there have been investments across various sectors of the economy. The private equity-venture capital (PE-VC) sector recorded investments worth $ 10.7 billion across 137 deals in August 2021, registering a 5x yoy growth. However, India needs to increase its rate of employment growth and create 90 million non-farm jobs between 2023 and 2030 for productivity and economic development, according to McKinsey Global Institute. The net employment rate needs to grow by 1.5% per year from 2023 to 2030 so as to achieve 8-8.5% GDP growth between 2023 and 2030.

Numerous foreign companies are setting up their facilities in India on account of various government initiatives like ‘Make in India’ and ‘Digital India’. Under its ‘Make in India’ initiative, the government is trying to boost the contribution made by the manufacturing sector to take it to 25% of the GDP from the current 17%. Besides, the government has also come up with the ‘Digital India’ initiative which focuses on three core components: creating digital infrastructure, delivering services digitally, and increasing digital literacy.

In September 2021, Prime Minister Narendra Modi approved the production-linked incentive (PLI) scheme in the textiles sector — for man-made fibre (MMF) apparel, MMF fabrics, and ten segments/products of technical textiles — at an estimated outlay of Rs 10,683 crore ($ 1.45 billion). The government approved a production-linked incentive (PLI) scheme for automobile and drone industries with a price of Rs 26,058 crore ($ 3.54 billion) to boost the country’s manufacturing capabilities.

Further, the Union cabinet approved significant reforms in the telecom sector, which arfe expected to increase employment, growth, competition and consumer interests. Key reforms include rationalization of adjusted gross revenue, bank guarantees (BGs) and encouragement to spectrum sharing. In addition, the government announced plans to release Rs 56,027 crore ($ 7.62 billion) under various export promotion schemes to boost exports. By November 1, 2021, India and the United Kingdom hope to begin free trade agreement negotiations. The proDr VVLN Sastry posed FTA between these two countries is likely to unlock business opportunities and generate jobs. Both sides have renewed their commitment to boost trade in a manner that benefits all.

The government will increase public health spending to 2.5% of the GDP by 2025. In addition, India is focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy – currently 30% — from non-fossil sources by 2030, and has plans to increase its renewable energy capacity from 175 gigawatts by 2022. In line with this, in May 2021, India and the UK jointly launched a ‘Roadmap 2030’ to collaborate and combat climate change by 2030.

India is expected to be the third-largest consumer economy as its consumption may triple to $ 4 trillion by 2025, owing to a shift in consumer behaviour and expenditure pattern, according to a Boston Consulting Group (BCG) report. Moreover, it is estimated to surpass the US to become the second-largest economy in purchasing power parity (PPP) by 2040, as per a PricewaterhouseCoopers report.

CI: Leading names in the field, from a renowned global investor like Warren Buffet to the Indian monetary regulating authority, the Reserve Bank, and several market analysts have warned that the unprecedented boom is overdone and there may be a crash anytime. What is your opinion? What is your assessment?

Dr VVLN S: According to the original Buffet Indicator, the stock market is significantly overvalued. Ratio of total market cap over GDP: recent 10-year maximum -- 120.65%; recent 10-year minimum -- 54.47%; current -- 120.65%, and expected future annual return — 0.9%. Based on the newly introduced ‘total market cap over GDP plus total assets of central bank’ ratio, the stock market is significantly overvalued. The ratio of total market cap over GDP plus total assets of central bank: recent 10-year maximum -- 104.96%; recent 10-year minimum -- 48.43%; current -- 104.96%, and modified expected future annual return — 1.2%. Under the original Buffett indicator, India’s stock market is expected to return 0.9% a year for the coming years. This is from the contribution of economic growth in current local prices: 5.93%, dividend yield: 0.15%, and valuation reverse to the mean - 5.22%.

Under the modified model, the contribution of economic growth and dividend yield stays the same while the valuation reverse to mean changes to -4.88%. Consequently, the stock market of India is expected to return 1.2% a year. This is the projected return and the modified projected return of the stock market in India relative to other countries. On a standalone basis, if we compare the yearly FII and DII investments in the capital markets, the trend shows that both the FII and DII segments are increasing their exposure in the Indian stock market on a yoy basis. A view from the below table shows that there is an accommodative approach that is going on between FIIs and DIIs. When DIIs are selling, FIIs are buying, and vice-versa. The current trend of mutual accommodation for indices gains and collective gains looks to be perfect. But the doomsday feeling of Warren Buffet and the RBI by calling the current trend an ‘unprecedented boom’ time and ‘overdone’ may not find takers, mainly when we can see the mutual accommodation between FIIs and DIIs.

However, any negative global trends that may emerge or unexpected domestic happenings that may take place, which in general is an industry trend, may make the statements of Warren Buffet and the RBI find relevance.

At this point of time, we also need to keep in mind that having reached the levels of 18,210.9 as of October 27, 2021, the market will have to touch new highs in the future, and such new highs may make the weak hearts face scepticism as every day rise in the market is unchartered territory. However, the liquidity accommodation is an exciting thing to watch, and it acts as an indicator to gauge that the market is touching new highs.

CI: What may be the movement of the Sensex and the Nifty during the new year? What, according to you, are the prospects for the stock market during Vikram Samavat 2078? Dr VVLN S: The Sensex may touch 70,000 levels in Samavat 2078, and the Nifty may touch 20,744 on the high side.

On the lower side, due to negative global and local trends, if any, the Sensex may touch a bottom of 55,000, and the Nifty may touch 14,817.

(Dr VVLN Sastry is a post doctorate in Economics and a PhD in Law & Public Policy. He is a passionate economist, financial analyst and law expert.) Date FII (INR Crore) DII (INR Crore)

India enters golden investment era - Deven Choksey

¢’ India’s market wealth is $3.5 trillion now and is expected to surge to $ 15 trillion in the next 15 years. Correspondingly, the per capita income will also rise to $ 6,000 from $ 1,500 now with the growth in GDP and market cap. For investors, it is the golden period of this century for building portfolio wealth.

Thanks to the series of economic and policy measures taken by Prime Minister Modi and the government in the last 7 years, India is the centre of attraction for global investors. The China-plus 1 move of western nations has placed India as a preferred destination for global investments. India is already in its sweet spot.

INFRA BECKONS

A. The following 10 key reform measures and opportunities for corporate India are compelling reasons for investments:

1. Building national infrastructure – The government has announced a Rs 100 lakh crore investment under the ‘PM Gati Shakti’ infrastructure development programme by 2025, consisting of:

a. Building more than 2 lakh km of national highway

b. Creation of 220 new airports, heliports and water aerodromes

c. 11 industrial corridors and 2 defence corridors

d. Increasing the cargo handling capacity of the railways to 1,600 million tonnes from 1,210 million tonnes

e. Increasing the renewable energy capacity to 225 GW from 87 GW, eventually increasing to 450 GW by 2030 and significantly reducing India’s dependence on carbon dioxide-emitting imported fuels, saving foreign exchange for the country

f. Increasing the length of the transmission network to 454,000 ckm.

g. Adding 17,000 km of gas pipeline

h. Providing 4G connectivity to all villages

i. Integrating rail, roads, ports, airports in a multi-modal transportation and logistics network for faster movement of cargo and people and thereby saving the cost of logistics for the industry

2. Building Social Infrastructure - Building affordable houses, sanitation facilities and providing water, electricity and gas in every home

3. Building Industrial infrastructure - Attracting industries under PLI schemes for making India a manufacturing hub under ‘Aatmanirbhar Bharat’

4. Opening up the core sectors to private sectors - Attracting global and local investors in defence, mining and oil&gas exploration

5. Strengthening the policy framework for faster growth – the New Education Policy for attracting global students to India and providing higher education to students; the New Taxation Policy for encouraging taxpayers under a simplified tax regime; the New Agriculture policy of providing MSP and transferring dues to farmers under DBT to bank accounts, increasing the role of farm cooperatives by promoting 40 new cooperatives in the next 2 years, and continued emphasis on an increase in agriculture output are some of the game-changers in building the nation

6. A strong regulatory framework for faster decision making – Financial market regulators in the RBI, SEBI, IRDA and PFRDA; a real estate regulator in RERA; telecom and power sector regulators; a regulator for energy and for the gas pipeline; NCLAT courts for bankruptcy resolutions; NARC bank for unlocking bad assets of banks; targeting a 100% digital economy; targeting digital health records for providing healthcare to the people; targeting a national grid for electricity transmission; targeting ‘one nation, one election’;| targeting faster resolutions of legal cases in the courts. These are some of the very important measures which have deep roots in debottlenecking and expanding economic activities in the country and have the potential for improving the efficiency of execution of projects in the country

7. Privatization and monetization of PSU and government assets – Enabling provisions in laws have been introduced to ease the process of divestment of PSUs. The biggest success is Air India’s privatization, which will save about Rs 7,000 crore of yearly losses of the government’s and taxpayers’ money; over Rs 6 lakh crore worth of non-strategic assets have been identified for selling to the private sector by 2025, and will significantly result in attracting global and local investors. GDP growth could accelerate in the near term before stabilizing at 10% for the decade.

8. Building the largest startup factory of the world – India currently houses the 3rd largest startup ecosystems in the world, with more than 30 startups already achieving unicorn status, i.e., valued above $ 1 billion. India has more than 50,000 startups, who employ about 470,000 people. The market cap created by these startups is more than $ 300 billion.

9. India is set to become the 5th largest capital market in the world by 2024 with a market value exceeding $ 5 trillion by 2025. The market wealth is likely to grow by 50% in the next 4 years, giving visibility of a 25% average return per year.

10. Low cost of funds - Accommodative monetary policy of the RBI;| disciplined and controlled borrowings by the government despite pandemic-led disruptions of economic activities.

With the economy heading towards a $ 10 trillion GDP in this decade, India is expected to be a capital account convertible country before 2024-25, which would further lead to accelerating growth in the economy under liberated dollar inflows.

Corporates: Big is Getting Bigger

India’s top 10 promoter groups have scripted a sustained growth programme for the next 10 years which will scale them to global size. At present, the total market cap of the top 10 Indian promoter group companies is $ 1.4 trillion, which is 40% of India’s market cap today. It is expected to grow to around $ 10 trillion, assuming they grow their business at twice the GDP growth, i.e., @ 20% CAGR in the next 10 years.

SHARE OF THE PIE

1. Reliance group – $ 245 billion* Oil to Chemical: Oil&gas, refinery, chemicals & polymers; green energy: solar, energy storage, hydrogen, fuel cells; Retail: stores, online stores; Jio platforms – communications, business applications, technology and data services providers; media; finance

2. Tata group – $ 303 billion* Aviation; auto; retail; chemicals; consumer; energy & utility; commodities infrastructure; finance; software; services

3. Adani group – > $ 122 billion* Infrastructure; logistics; energy & utilities; FMCG; airports; Cloud computing

4. HDFC group - > $ 216 billion* NBFC; bank; AMC; insurance

5. SBI group – > $ 87 billion* Bank; cards; insurance

6. Bajaj group – > $ 128 billion* Auto; finance; insurance; investments; consumer

7. ICICI group – > $ 96 billion* Bank; AMC; insurance; securities trading

8. Hindustan Unilever – > $ 82 billion* FMCG

9. Aditya Birla group – > $ 72 billion* Commodities; telecom; finance; software

10. Kotak Bank – > $ 52 billion* Note: *Current market cap as on 13-10-21

Opportunities: Investor is getting bigger Given the size of growth in India’s capital markets, investors have the prospect of growing their wealth at 20% CAGR in the next 10 years; i.e., Rs 1 lakh invested today could grow to Rs 15.50 lakh.

We see a good long-term opportunity for investments in select businesses like Life insurance, consumer banking supported by fintech, digital tech companies who are transforming businesses into new age enterprises; IT companies with a focus on digital solutions.

(Deven Choksey is Managing Director of KR Choksey Investment Managers Pvt. Ltd.)