Opportunities in the current crisis

The current market meltdown has created a golden opportunity for investors (not traders). Quite a few of the blue-chip stocks, though they may not look blue now, are trading at their yearly lows, for no apparent reason. For e.g. it beats me as to how oil prices or for that matter Yuan devaluation will impact the business or profitability of a Sun TV or for that matter NBFC like SKS Micro or Manappuram Finance. It must be remembered that these are purely India-focussed companies and are not impacted by any of the 2 major issues facing the global markets currently – oil prices and Chinese economy and currency. It is only the traders who punt daily who are bearing the brunt of this fall.

If anything, India is heading into a period of lower interest rates and that will add heft to economic growth and corporate earnings. Most of the current turmoil in the Indian markets can be attributed to FII selling. These are the guys who are most impacted by the global issues and hence are pulling out their money from Emerging Markets, irrespective of their fundamentals, and moving to safer havens, or sitting on cash. What is surprising is that the DII haven’t really counterbalanced them by aggressive buying, in spite of attractive valuations.

So here are my picks from the beaten down stocks (except Infosys):

Infosys – Though IT industry has been facing a tough time in recent years, Infy has got its mojo back with Vishal Sikka at the helm. This man has really done wonders for the floundering firm. At this juncture, Infy is any time a better bet than TCS and should do well going ahead mainly for 2 reasons:

·    Rupee depreciation – this should certainly help it in rupee terms cushioning the fall in revenues due to reduction in IT spends by clients. And I don’t think rupee is done yet. Levels of 70 seem likely in the next few months.

·    Focus on niche and futuristic technologies – By his own admission, Sikka has clearly said that new technologies like machine learning analytics and automation are gaining traction. This is a good sign as it will reduce dependence of the revenues on human resources billability. Also, visa issues and costs will also get reined in, if less manpower is required to do the same things now.

SKS Micro – This is another one which has got absolutely nothing to do with China or the world economy at large. But in the current turmoil, this also has got hit, down about 20% from its yearly high, for no apparent reason other than market sentiment.

Sintex Industries – Another victim of market sentiment. Again, same logic as SKS Micro applies. No obvious reason to go down 25% from 100 levels to 75 now. Sintex’s business model is strongly connected with macro-outlook and boost in government spending. The company will be a major beneficiary from government’s strong focus on wide range of infrastructure and social improvement plans viz. education, healthcare, sanitation, housing etc.

Dewan Housing Finance (DFHL) – Another victim of market sentiment. Again, same logic as SKS Micro applies. It continues to perform well on growth and asset quality front and this parameter is under the microscope of the market and everybody else. Look at Axis and ICICI Bank, yesterday’s bluechips and today’s pariahs, solely because of this factor. The stock is trading at a steep discount compared to other HFCs (all trading above 2.4x P/B). Also, it is into Tier 2 and 3 cities where the ticket sizes are small but the reach is wide. All conducive factors for growth. It has come down by about 15% from Diwali i.e. in about 2 months for no apparent reason.