EY lists recommendations to revive real estate post COVID. EY said that developers will now have to aggressively invest in building seamless end-to-end digital
Which sectors will boom post-lockdown?
Why discuss Sector collectively?..Isn’t it all about a good company and isn’t there a bad company in every leading sector or a good company in every lagging sector?
The answer is Yes and all of the sectors i am about to talk about have some good companies and some bad companies.The assumption i am starting with is that the readers are able to identify the best businesses of the particular sector who are capable of generating an alpha(capable of generating superior returns)compared to its peers in same sector.
The Concept of Sector rotation
Sector Rotation is a constant phenomenon amongst Big Investors and it has been proven historically from time to time,every bull market to bull market. Be it the IT boom of the late nineties, Old economy and Real Estate Bubble of the mid 2000s everytime there are few sectors which outperform the others hence generating alpha.
With the scare of huge NPAs among the Financial Sector, Curb in demand for discretionary spending negatively effecting Auto sector, Scare of Covid-19 disrupting the tourism and related sectors such as Aviation and Hospitality some sectors may see huge amounts of money flowing.
The unfortunate spread of Covid-19 all over the globe have proved to be a revival of Indian pharmas due to its generic exports and US FDA dealing Indian pharmas with more leniency in recent times compared to the ruthlessness in earlier years.
In her controversial bestselling book, ‘Bottle of Lies: Ranbaxy and the Dark Side of Indian Pharma’ (2019), American investigative journalist Katherine Eban gives several examples of sub-standard generic drug manufacturing and intentional data falsification by big pharmaceutical manufacturing companies in India.But the tides seem to be turning now with Indian Pharma majors fulfilling the demands of US generic drugs due to Covid-19 outbreak.
Moverover the underperformance of Nifty Pharma compared to the overall markets since 2015 make it a perfect candidate to lead the next Bull market whatever it unfolds.Following the principal of sector rotation this sector is a prime candidate to be amongst the leading sector of next bull market. Some majors like Lupin ltd, Cipla, Sun Pharma , Divis Labs, Dr Reddy’s , Dr Lal Path Labs etc can outperform.
Data is the new Oxygen and rightly so especially in this time of lockdown where the only thing the world is consuming apart from essentials is Data, or one can argue data itself is included in the list of essentials .
With just two major players left with healthy balance sheets and market share the Indian telecom story seem very attractive in coming decade.The AGR dues are not that big of a problem for top two players with their cashflows. With data prices forming the base and are bound to rise in future it seem like the worst is over for the Indian Telecom majors.
Every 3 out of 4 individuals (about 75% of population) in India do not have life insurance, revieled and IRDAI report. This amounts to whooping 98.8 crore people living without life insurance in India. If these are the statistics for life insurance one can imagine how low is the percentage of Indians who have undertaken Health insurance and how under insured Indians are.
The insurance sector continues to remain one of the fastest growing markets with a Compound Annual Growth Rate (CAGR) of 12% from FY14 to FY19 according to EY-ASSOCHAM report. The IBEF has estimated the Indian life insurance industry to grow by 12-15% annually for the next three to five years.
Driven by increase in household financial savings by the consumers over the last few years as compared to investment in physical assets like gold. The reason for the shift in financial savings can be attributed to interest rates, industry initiatives and government policies. Other factors such as young population, growing working age group, rising income levels, increasing awareness about insurance and under-penetrated market have also boosted financial savings in recent years. Insurence private majors such as HDFC Life, ICICI Prudential, ICICI Lombard can be the direct benificialries of the boom in Indian growth story in Insurance sector.
Latest data of Market share among Private life insurance companies in India
Indian chemicals as a sector is very export oriented in nature unlike most other sectors which are domestic consumption based in nature which provide chemical companies an edge over other sectors. Global dependency reduction on China and ongoing US- China open ample door of opportunities for indian Exports which is lead by chemicals in general.Companies like Naveen Flourine,Vinati Organics, Aarti Industries and others can be one of the best wealth creators in this space.
Coffee Can Companies
Coffee Can Investing focuses on large well-established companies which have demonstrated sensible capital for a decade or more.A portfolio of such companies, remains resilient even during periods of market stress, thereby generating consistent and healthy returns with volatility of these returns being as low as that of a government bonds in the long run.
The major criteria a company need to fulfill to be a part of coffee can portfoli is their ROCE (Return on capital employed) should be more than 15% and Sales growth more than 10% consistently for the last 10 years. Some examples of such companies are Asian Paints Ltd, Pidilite Industries, ITC ltd, Marico. Simply apply this criteria and one can easily get few companies and hold them for a decade or so.
Coffee Can Investing book written by Saurab Mukherjea of Marcellus PMC
Some businesses which operate as a monopoly in their niche or those who have created strong barriers to entry for their competition to enter are the ones every investor should hold in their portfolios. Generally most of these businesses either satisfy the Coffee Can criteria or are emerging businesses with huge market share in their respective areas.
Be it Avenue Supermarts(DMART) due to their low costing , Infoedge(NAUKRI) due to its technology driven emerging business there are a few such stocks one should look to hold in the next bull market.
Disclaimer:- Stocks represented here may or may not be in my portfolio and are discussed just for educational purposes and these should not be treated as recommendations or advice. Please consult your financial advisor before taking any investment decision.