Investors have to resist the temptation to become short-term traders in a volatile market and choose wisely with an eye on the future

Very investor is likely to be a hero in a falling market, with many rushing in to buy during a big crash. The rationale is to go on a frenzied buying, much like what one does during an online sale, to get the best bargain. However, unlike an online sale, which is of a limited duration, in the case of a falling mar­ket, the waiting time is unknown. And one cannot exit the stock by returning it, with no questions asked. Investors cannot predict the bottom. Hence, veteran investors avoid don­ning the role of traders during crisis and tend to buy not when the market is falling but when the market shows signs of a reversal and starts moving upwards. One cannot in real life tend to buy at the lowest levels. Hence, it makes sense to spread investments in three or more tranches.

The investment strategy has to be made keeping at least a two-year per­spective, if not more, and based on the conviction that India’s growth story will continue over the next several years. Based on this prem­ise, banking sector will be the first to lead the charge, as it did during the earlier bull run of 2003. Amongst banks, one can easily stay off the PSU banks, which are still saddled with NPAs and may take another couple of years before they are back on the growth track. While it is a no brainer to buy HDFC Bank, ICICI Bank or Axis Bank, it makes more sense to look at relatively smaller banks, where the percentage growth based on the small base will be higher. Yes Bank could easily go up by 50 per cent by next March. If one expects RBI to lower rates in the coming quarters, Induslnd Bank, which has a good amount of retail portfolio of car loan assets, may also benefit. However, Kotak Mahindra is the bank which seems the most promising.


Kotak Mahindra Bank

With a market cap of 71.15 lakh crore, the bank has handled the merger of ING Vysya Bank quite well. It has been able to increase its national footprint in southern India to become a truly pan India bank. Given its diversi­

fied portfolio and the recent moves it made in taking exposure to gen­eral insurance, 20 per cent in Bharti AirteTs promoted payment gateway, which was recently approved for a banking licence by the RBI along with 11 others and its aggressive forays in the securities and fund management space it will have an edge over other worthies like Induslnd Bank and Yes Bank. The company has created huge amount of wealth (71 lakh invested in 1985 is worth 71,100 crore) in the past and the journey of Kotak Mahi­ndra Bank 2.0 will be as eventful and shareholders can safely invest in this stock to build a legacy for their next generation.

LIC Housing Finance

Besides banks, specialised housing finance companies are worth look­ing at. Again, like in the banks, while it makes sense to have HDFC in one’s portfolio, the government’s
inclusive agenda and emphasis on affordable housing makes both LIC Housing Finance and Gruh Finance look attractive. Indiabull Hous­ing, however, enjoys a higher mar­ket cap of 727,551 crore, compared to LIC Housing Finance’s 721,539 crore and Gruh Finance’s 78,658 crore and also has the lowest P/E of 13.3, com­pared to Gruh’s 41 and Lie Housing Finance’s under-14. Because of its brand, Lie enjoys a better recall than Indiabull. Gruh, despite being a sub­sidiary of HDFC, does not have a pan- India presence and is seen largely in the small ticket size loans. LIC Hous­ing has a relatively small capital base of 7100 crore on which it earned a PAT of nearly 71,400 crore. The EPS on the 72 paid up share on a consoli­dated basis was 727.65 for 2014-15, as against 726.12 for 2013-14.

The shares have gone up from a 52 week low of 7298 and had risen to a 52 week high of 7526 on 6 August. The current level of 7427 indicates that it could go down still further. However, this is a share which is worth having in one’s portfolio like HDFC.

Bharat Electronics

One of the best performing PSUs in the defence sector, the company has been posting a robust growth over the years. On a turnover of 76,695 for 2014-15, it earned a PAT of 71,167 crore. It has an EPS of 7145 on a rela­tively small equity base of 780 crore. Its order book has exceeded 721,600 crore, which is nearly three years’ production at the current levels. The company, which makes a range of products including naval surveil­lance radar, air defence, radar warn­ing receivers, amongst others, spends a little over 8 per cent of its turnover on R&D – by far the highest amongst the defence PSUs. Nearly 80 per cent of its products are made indige- neously, with 20 per cent products coming through tie-ups with foreign OEMs. The company’s share, which had gone down to 725 soon after the Pokran nuclear test done by India in 1998, is today hovering at 73,363 – down from 74,160 on 4 August. This gives it a P/E of just 23. Shareholders buying the shares will also get the

benefit of getting a 2:1 bonus, which has been declared by the company in July. For HNls, this also provides entry at a high cost, useful for tax planning purpose.

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