Coming to India specifically we have seen signs of stabilization and growth starting in sectors like automobiles, consumer durables, cement etc. Steel consumption has also stared moving up due to greater execution of infrastructure projects. The economic performance seems to have bottomed out in India in January 2009. Liquidity scenario has undergone a sea change and as on today bulk deposit rates which had gone up as high as 13-14% in the last few months of 2008 have come down to 5-6%. Consumer sentiment has also started to stabilize and revive.
Global liquidity has also improved where both LIBOR rates as well as corporate spreads have contracted significantly over the last three months. This will also reduce the cost of refinancing of Forex loans.
Under the circumstances it is important for investors to revisit their investment strategies. The few strategies that should work over the next few months are as follows –
Alternative energy companies – With easing liquidity and bottoming out of crude oil prices, combined with clean energy investments proposed by the new administration in the USA we should see such companies coming back in focus. Stocks of such companies have come down to 10-15% of peak prices.
Automobiles – I am very positive on this sector as we are likely to see strong volume growth revival as well as margin expansion in this sector. This should be a big outperforming sector over the next two years. With consumer financing easing out, the economy reviving and interest rates starting to fall this sector is well placed.
Mid cap stocks in general – Today if one looks at companies on the large cap side (specially that are perceived to be the bluest of blue chips), taking an illustrative example of Reliance Industries the stock price is today 55-60% of its peak value, similar is the case with Bharati Telecom. Most defensive large caps like HLL, ITC are still trading near their peak prices. However today we see a phenomenon where a large number of mid cap companies with extremely robust business models, strong managements, strong cash flows, good profit growth have come down to 10-20% of their peak values. This is not restricted to high risk companies like those of the real estate sector but to a majority of mid cap companies. Out of the universe of nearly 1000 investable mid cap companies one can find at least 20 that can be multibaggers from here on. Incidentally to be multibaggers they just have to go to 50% of their peak values.
Hard work and proper due diligence done in this segment will give the maximum returns over the next two years.
highest. At such times the actual risk of investing tends to be the lowest and the bridging of this gap is what makes money”.