As CY2012 draws to a close, equity investors in India find themselves caught in capricious cross currents. As if falling growth, burgeoning deficits, an alarming investment slowdown and political uncertainties are not enough, the outside world seems to be consistently looking at India through a blurred window. Persistently high oil prices (and the resulting trade deficit) have eaten into the INR, providing tailwinds to inflation. Europe and the US are in a funk of their own, even as China grapples with a difficult-to-manage fall in growth momentum.
Hence, classic top-down investing faces a clear hurdle, according to HDFC Securities. "Government policy is clearly running behind reality, and rules out a sensible or rational anticipation of big themes for now. We fear the recent momentum on policy evolution runs a clear risk of running into election and political headwinds," it said.
Outperforming the lead indices will require diligent, bottom-up stock picking and allocating significant portfolio weights to stocks outside the popular benchmark indices. As is always the case with such an approach, patience will be a key virtue, it opined.
HDFC Securities has come out report on absolute value conviction ideas. Commenting on the selection of stocks, the stock broker said, ''None of our picks here are particularly beholden to government policy. Nor do they passively ride big picture themes that 'India story' writers gloat over. Instead, most of these managements have displayed a remarkable capacity to identify opportunities that exist despite the Government, and despite India's all-too-familiar stumbling blocks. All of them have chosen a difficult but profitable path, and excelled against odds."
Nine absolute value conviction ideas from HDFC Securities are as follows:
Federal Bank's calibrated and profit-focussed approach to lending makes sense to us.
LIC Housing Finance is a multi-year play on the still-underpenetrated home loan market in India.
Jaiprakash Power's management has aggressively reinvested ‘assured' cash flows from its lucrative hydel assets into hi-visibility thermal capacity.
Hexaware's growth has moderated but valuations are supportive, given strong dividend yield; growth can claw back.
MRPL is an unlikely, but identifiable, contender via its value-accretive expansion plans. Tax benefits only add to its value.
Birla Corp is the cheapest cement stock in its size, and performs like a winner even with its hands tied.
Torrent Pharma is highly profitable in India, Brazil and USA. Lack of liquidity on the bourses keeps it arrestingly cheap.
Balrampur Chini is arguably the most respectable sugar maker in India, but trades below historic averages even as the sugar cycle seems to be in its favour.
Navneet Publications holds a gem of a business franchise, and is on the cusp of bigger things.
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