A vibrant economy and stable currency will make it hard for foreign investors to ignore the theme.
One question which every trader seeks an answer for is what will outperform the market in any given scenario. The way market has rallied so far in the year 2017, there are a lot of stocks which are already trading above their long-term averages but some themes still have potential to outperform.
“My sense is that in the next five years I would look at more in terms of how India as a country grows, what kind of improvement you see in the per capita income, what kind of governance structure you get, what kind of government you get,”
The government is making constant efforts to inject fuel into the economy by deploying measures to boost consumption, implementation of goods & services tax (GST), inflation looks under control which should prompt the central bank to bring down rates, and above all stable political climate.
The D-Street is already factoring in a possibility of Modi-led government 2.0 in the upcoming general elections in the year 2019 which adds to political stability.
The government has announced many pro-growth reforms since 2014 when it took charge at centre in areas of real estate, banking, infrastructure, roads and highways, real estate, housing etc. among others.
All these measures are likely to benefit sectors which are linked to the economy or are ‘Bharat’ focussed and due to the vibrancy of the economy and stable currency foreign investors might not be able to ignore us and that would assure continuous flows from overseas.
“Definitely “Bharat” will outshine global growth in the next few years. The key drivers being our young demographic structure & rising disposable incomes which will drive consumption growth on one hand; and an increase in infrastructure spend and capacity expansions (to meet the rising demand) which will drive investment growth,” Alok Ranjan, Head of Research, Way2Wealth Brokers Pvt. Ltd told Moneycontrol.
Domestic demand will be the key driver of growth for Corporate India over the next few years which would aid earnings growth.
Even though the valuations look stretched, analysts are advising clients not to ignore the Bharat themes which include sectors like infra, realty, autos, consumption, capital goods etc.
At the current juncture, when markets are looking richly valued, these are some of the sectors where secular growth can be seen over a period of time, suggest experts.
The growth could be the result of spending coming from the government side, 7th pay commission, opening up of FDI in various sectors, lower interest rates and expectations of favorable monsoons.
“The implementation of GST is expected to boost the formal economy in a big way and increased spending will result in sectors which are linked to the economy,” D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd told Moneycontrol.
“India is a story of decades, but nonetheless with political stability and government initiatives and efforts to bring India on a faster growth trajectory, we feel themes like Infrastructure, banking and finance, logistic, FMCG (consumer durable & staples) and automobile would play out well at a first point in the next 3-5 years,” he said.
We have collated a list of ten stocks which are likely to benefit from theme ‘Bharat’ in long term:
Analyst: Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments
In the Union Budget 2017-18, the government has given more emphasis on the infrastructure spending by allocating around Rs3,96,135 crore in creating and upgrading infrastructure. We believe for the smooth infrastructure, the government is likely to make heavy investments in highways, railways and urban transport.
L&T, being the leader in a particular sector is well placed to garner the advantages arising out of emerging opportunities. As per the management guidance, it has growth guidance of 12-14 per cent for order inflows and 12 percent for revenue growth for 2017-18.
As we are able to see India theme running in the future also, so we are very bullish on the Auto bellwether, Maruti Suzuki which could well hit Rs9000. We are witnessing huge growth in the young working population along with the shift towards urbanisation.
Over the period of time, Maruti has been eroding other auto companies’ market shares (more than 50% market shares) by its fabulous products for all the income groups.
Currently, the company has several future products in the pipeline along with loaded ongoing products with huge demand. Hence, we believe the company stand well to cater the huge demand arising from the income group.
When we are talking about consumption storey to continue, we believe the Bajaj Finance is the company to get benefitted most in the finance sector. This company offers consumer durable loans as well as housing finance.
Changing lifestyle will provide spur the demand for the consumer durable, hence Bajaj finance being the precursors in consumer durable loans are likely to see demand for consumer durable loan segment. Further, Modi Government ongoing push on housing for all as well as affordable housing is likely to add sentiments.
Textile major is backed with strong promoters and has strong fundamentals. Textile and apparel Major Raymond will invest Rs 350 crore in capacity and retail expansion this year. This stated expansion will help the company to ramp up its apparel sale and grow the fabric business over the next few years.
Currently, it has 1000 retail and plans to open nearly 150-200 stores this year. Raymond is well equipped to cater to Changing lifestyle demand, in the past, Raymond has launched a new fabric, Technosmart.
This new age Technosmart collection of polywool fabrics has features like UV protection, wrinkle resistance and smooth touch, which are ideal for crafting trousers, suits and jackets and currently in the demand.
The company is keeping an eye to get the business of Rs 100 crore in the next one year. Hence, looking at all the scenarios, we believe Raymond is a good pick for the long term to meet India theme.
Modi government initiatives on the “housing for all” and “affordable housing” are the main trigger the company. Originally known for its switchgear with a stronghold in the Southern region, the company has over the past few years been focusing on becoming a pan-India brand.
The company is ramping up the number of exclusive brand shops and expects to have about 100 brand shops operational by the end of this year. Looking at the above scenarios, we are strongly bullish on the company on the long run.
Analyst: Alok Ranjan, Head of Research, Way2Wealth Brokers Pvt. Ltd
Britannia Industries is a key player in the Indian Snacks & Savory space. Britannia powered through with its distribution led strategy and achieved consistent volume growth over the last few years.
Company’s future focus is to gain market share in weaker markets and launch new categories to further entrench its brand in the mind of its consumer. A great proxy to rising disposable incomes and increase in wallet share towards packaged foods; Britannia stands to gain from this trend in the years to come.
Bharat Electronics (BEL)
BEL is India’s largest defence electronics equipment manufacturer is all set to be a key beneficiary of Indian governments increasing thrust on the replacement and modernization of military hardware in the country.
Defence being a strategic subject for the country from security and secrecy viewpoint, we believe BEL, a public sector undertaking (PSU), will continue to get preference from the government for large orders as a supplier and system integrator.
A Retail focused cement player, NCL operates predominantly in AP/Telangana markets. Currently, NCL has 2mn tn cement capacity and largely focused on retail trade segment selling cement mainly in AP/Telangana (75%), Tamil Nadu (11%) and Karnataka (11%).
The company also supplies cement with higher clinker content for sleeper manufacturing. We believe NCL’s strong brand franchise, premium positioning in north coastal AP and low-cost capacity expansion (0.7 MT at Rs1,800 mn ) will enable the company to grow above industry average and post healthy EBITDA/tn in the next few years.
Trends toward urbanisation, rising income level, favorable demographics and nuclearization of families, are the major growth drivers for the interior infrastructure sector. ‘Housing for All' & 100 smart cities key Government initiatives to drive housing growth.
Plywood and MDF form the backbone material for furniture. Greenply Industries is well poised to play out a leading trend change in the interior infrastructure space over the next few years.
For the next 2 years, the company is in capex mode. It is setting up a large facility for MDF production in AP which will enable the company to treble Apart from this the company is adopting an asset light model for its plywood segment.
We believe the company is strategically investing in the future growth drivers and hence will come out stronger to reap benefits from the future opportunities.
M&M is likely to be a major beneficiary of expected better monsoon this year and government increasing thrust on rural spend. Both these developments are likely to sustain the tractor demand in farm and non-farm usage segment and also revive its utility vehicle business.
Analyst: D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd
The company is targeting Return on equity (RoE) of 15-16%, while Return on Assets (ROA) is targeted at 3% for FY2018. Lower credit cost (100 bps) and improvement in cost to asset ratio (by 100 bps) are expected to add 200 bps improvements in RoA in FY2018. The company expects to raise equity capital in the second half of FY2017, if the growth turns out to be better than expected.
The company expects the key growth driver, going forward, will be increased in penetration levels of cars, utility vehicles, increase in dealership and access to finance etc. Moreover, the company will continue to grow aggressively in terms of branches and dealer network.
The company has the quality of land bank, its healthy balance sheet & management bandwidth to execute large projects would give a good boost. According to the management of the company, sales volumes look strong due to a lot of significant policy changes for the real estate sector as well as the domestic economy.
Key initiatives like the passing of the Real Estate Regulatory Act, clarity in REIT legislation and the GST roll out will eventually boost market sentiments and buoy the economy.
Company had planned a capital expenditure of Rs 30 crore to Rs 50 crore which would go towards maintenance but this could go up by as much as Rs 200 crore to Rs 250 crore if the company gets a favourable response from the railways for its request for rail connectivity to its proposed logistics park at Jhajjar in Haryana.
With current businesses largely in steady state and minimal capex requirement and strong balance sheet and the Goods and Services Tax (GST), will bring healthy growth prospects for the company.
Business performance of the bank such as domestic loan growth, overall corporate advances, retail loan growth, CASA ratio are continuously improving. On the development front, it is increasing its presence across the country and in line with that during FY17, its total branch network and ATMS reached 4850 and 13882 respectively.
Moreover, the Bank would focus on fully leveraging existing resources and infrastructure. Further, it would also look at implementing additional cost optimization measures during the year, while growing its retail franchise.
Recently, the company has announced the launch of its BS-IV emission norm compliant 2017 edition of Pulsar RS200 and NS200 models priced up to Rs 1.33 lakh (ex-showroom Delhi). With the new 2017 Pulsar range, the company is offering discerning motorcyclists a combination of sporty responsive performance, high-quality finish and handling.
The company has a diversified business model and a strong focus on the profitable growth, widening reach in export markets and strategic alliances with global majors.
The domestic 2-wheeler market would start growing from the festive season & would continue to grow for the next couple of years. Management expects improvement of liquidity in system post remonetisation which will lead to a faster pick-up in volumes.
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