“I do have a few substitutes to juice up the portfolio, if conditions change,” says Ayon Mukhopadhyay of IIFL Institutional Equities for UK and Europe
As the greatest spectacle on earth kicked off last week, it’s time to choose your dream team. Sadly, India doesn’t have a contingent at Russia, but I present to you a squad of 11 stocks that can be world beaters.
Given the market conditions, I start with a traditional 4-3-3 format. I was tempted to put in 4 forwards but chose the more orthodox approach. I do have a few substitutes to juice up the portfolio, if conditions change.
Forwards: These would be my alpha generators: cyclical, high rewarding with a goal scoring appetite, momentum, and energy. My 3 talisman would be:
Having established its credentials in the global leagues with its Mylan tie up, this sharpshooter is my center forward. Expected to clear its 'dope tests' for its biosimilars approvals, revenues can grow 6 times in the next 4 years and I would not be surprised if this ends up with the Golden Boot.Yes Bank:
Focus on scoring at all odds, at times have led to the Reserve Bank handing red cards. But shedding the bad boy image by aligning its stressed asset recognition methods and extending the term to Rana Kapoor, the bank is now more focused.
No matter what they do off the pitch, on the ground is what matters, and this is a winner all the way. Still inexpensive, with strong earning trajectory, Yes Bank will find the back of the net consistently.Larsen & Toubro:
The old war hog is getting fitter by realigning its business and shedding its non-core flab. With valuations at historical averages, cyclical opportunities and focus on core engineering, procurement, and construction business, this ambidextrous striker can get you off the mark very fast in an early uptick of the investment cycle and expand the lead in a more competitive late capex cycle.
Midfield: I have chosen a slightly attacking midfield. They would still be high earners in a cyclical environment but could drop back and retain possession to allow consolidation when there is need to be less adventurous.HDFC Bank:
The bank is the bellwether of financial markets. The superstar. The captain of my team who can effortlessly thrust forward with scale, organisational knowledge and cost competitiveness to drive growth and maintain profitability.
As profitability is driven by productivity and efficiency improvements, earnings growth will sustain and so will its tag as one of the most prized players. Its American Depository Receipt avatar commands an even higher wage in the Major League in the US.Tata Motors:
Another old hand which is available at a decadal low valuation. Given the new model launches of Jaguar-Land Rover and its Indian business looking up (with improvement in the commercial vehicle segment), things should turn around and can be an attacking midfield option. With a double dividend, I will play the differential voting rights or DVR avatar.Teamlease:
A rookie who has had a phenomenal run since its debut two seasons back on the bourses. But has it peaked too soon? Not really, it is well-positioned to mature to legendary status as it makes multi-year earnings growth underpinned by low penetration of temp staffing in India and market share gains from a vast unorganised sector.
Defence: These are the pillars of the team. Nothing can sneak past. On sunny days or torrential storms, these will provide you comfort.Hindustan Unilever:
A consumer stock as defence is an old cliché, but this beast guarding the northern wall is India’s largest fast moving consumer company (FMCG). Hours on the training ground with a manic focus on costs has led to this veteran ensuring an increase in operating margins for 7 seasons now.
It has played the offside trap of GST to its advantage. Long-term drivers include market share gains with premiumisation opportunities.Infosys:
Having forayed across the pitch in various roles under countless mentors (with ugly exits) and been sidelined to the wilderness, the prodigal son of Indian IT returns with a rejuvenated but conformist mindset.
With the focus on scaling its digital business, use of artificial intelligence/automation to modernise the clients' core, accelerating large deals and improving win rate, this refreshed new look augers well. Tackling the nemesis of rising USD:INR, a (still 20 percent cheaper than Tata Consultancy Services) new looking Infy is the cornerstone of my defence.Motherson Sumi:
Three prong strength across its 3 lines, mid-to-high-teen earnings growth in its standalone business (led by volume and value growth) and Samvardhana Motherson Reflectec (SMR) (led by market share gains, slight margin expansion) brings a steady head to the backline.
High endurance training is leading to significant expansion in earnings before interest, tax, depreciation and amortisation (EBITDA) margin for Samvardhana Motherson Peguform (SMP)/PKC and would result in multi-fold rise in earnings of these two subsidiaries.Bajaj Finance:
Earnings keep compounding for this stallion who is still shy to consider itself a big boy. Strong cross-selling capabilities makes it core product an acquisition tool, long runway in the underpenetrated market, strong management team, well-managed execution and scalable businesses will keep overall growth higher than peers. A rock in the defence with clear visibility on earnings.
Goalkeeper: A safe no frill option to do the job.Power Grid:
Choosing from the state-run club may be unpopular, but given its regulated return on equity model and strong earnings visibility through FY21, Power Grid Corporation of India is safe as a house.
A strong balance sheet and impeccable track record of clean sheets give it stability to stop any surprise attack from private competition.
Also, its low-risk model makes it best positioned to stop the penalties of global volatilities of liquidity crunch/portfolio reallocation. Very cheap (10 times price to earnings with a 3 percent yield) valuations gives it gloves.
Coach: Prime Minister Narendra Modi. A year back it seemed his position was sealed for the long term. But recent events at home have jolted its long term hopes a bit. Still loved by players, its popularity is dwindling. Need his team to fire to get back confidence.
A forward with immense potential but seems to be less communicative on its role of micro-finance institution, small finance bank or non-banking financial company. Shrugging off its provisioning injuries, it should be well fit to ride the operating leverage to gain superior RoEs. A bit more faith shown by investors should see this kid attain star status.Ujjivan:
Another kid to have graduated from the MFI academy but growing faster than Equitas. A very tempting option if you do not trust the old legs of L&T to score.Asian Paints:
Another expensive defender but worth its price tag with an unmatched distribution network and leadership position. Proven ability to defend margins with price hikes makes it a first change if the formation needs to change to 5-3-2.Zee:
An attacking midfield option, which will benefit from a sharp recovery in advertising spending in India.Disclaimer: The author is Director of IIFL Institutional Equities for UK and Europe. The views and investment tips expressed by investment expert onmoneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
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