Heres your World Cup team for D-Street with Modi as coach
NEW DELHI: Football fever is gripping the investment world as much as soccer fans, with the Fifa World Cup 2018 kicking off.
Globally, brokerages are making projections for potential World Cup winners, just like they do them for stock prices and corporate earnings.
So involved is the financial world with this game of brawn that one analysis found as much one-third drop in equity trading volumes in select countries during this four-yearly extravaganza.
On Dalal Street, several renowned faces are either already in Russia or heading there to watch all the action live.
And then there are analysts and brokerages which are trying to draw simile between soccer and World Cup.
IIFL Institutional Equities has gone one step ahead to pick the equivalent of a World Cup soccer team from among the listed stocks, comprising the traditional strikers, defenders and goalkeeper.
The brokerage assigned the job of the coach to Prime Minister Narendra Modi.
Ayon Mukhopadhyay of IIFL Institutional Equities said he was tempted to put in four forwards or go the way of the 1970s Dutch Total Football format for team formation.
However, he had to settle for a more orthodox approach. The stocks picked for the team do have a few substitutes, if conditions change, he said in a note.
Here are stocks the brokerage picked for its Dream Team:
3 Forwards: Mukhopadhyay defined them as alpha generators; cyclical, high rewarding stocks with goal scoring appetite, momentum and energy.
His picks are:-
Biocon: Having established its credentials in global leagues now with Mylan tieup, this sharpshooter is my centre forward. Expected to clear its dope tests for its biosimilars approvals, revenues can grow 6 times in next four years. Mukhopadhyay says he would not be surprised if this ends up with the Golden Boot.
Yes Bank: The focus on scoring at all cost at times has led to RBI handing it the red card. But shedding the bad boy image by aligning its stressed asset recognition methods and extending the term to Rana Kapoor, Yes Bank is more focused. No matter what they do off the pitch, on ground action is what matters, and the stock is a winner on that count all the way. Still inexpensive, with strong earnings trajectory, Yes Bank will find the back of the net consistently.
Larsen & Toubro: The old war horse is getting fitter by realigning its business and shedding the non-core flab. Valuations at historical averages and with cyclical tailwinds and focus on core EPC business, this ambidextrous striker can get you off the mark very fast in an early uptick of the investment cycle and expand the lead in the more competitive late capex cycle.
Midfield: They have slightly attacking characteristics. They would still be high earners in a cyclical environment but could drop back and keep possession to allow consolidation when need to be less adventurous, Mukhopadhyay said.
HDFC Bank: The bellwether of the financial markets is the superstar. It is also the captain of team, who can effortlessly thrust forward with scale, organisational knowledge and cost competitiveness to drive growth and maintain profitability. As profitability is driven by both productivity and efficiency improvements, earnings growth will sustain and so will its tag as one of the most prized players. Its ADR avatar commands an even higher wage in the Major League in US.
Tata Motors: Another old hand, which is available at a decadal low valuation. But given the new launches of JLR and Indian business looking up (with CV improvement), things should turn around and it can be the attacking midfield option. Given the double dividend, I will play the DVR avatar.
Teamlease: A rookie, which has had a phenomenal run since its debut two seasons back on the bourses. But has it peaked too soon? Not really, it's well-positioned to mature to legendary status as it makes multi-year earnings growth underpinned by low penetration of temp staffing in India and market share gains from a vast unorganized sector.
Defence: These are the pillars of the team. Nothing can sneak past them. Be it on sunny days, or torrential storms, these will give you the comfort.
Hindustan Unilever: A consumer stock as defence is an old cliché, but this beast guarding the northern wall is Indias largest FMCG company. Hours on the training ground with manic focus on costs have led to this veteran ensuring an increase in operating margins for 7 seasons now. It has played the offside trap of GST to its advantage and long term drivers include market share gains with premiumisation opportunities.
Infosys: Having forayed across the pitch in various roles under countless mentors (with ugly exits) and been sidelined to the wilderness, the prodigal son of India IT returns with a rejuvenated but conformist mindset. With focus on scaling the digital business and use of AI/Automation to modernise the clients core and accelerating large deals and improving win rate, this refreshed new look augers well. Also tackling down the nemesis of rising USD-INR, a (still 20 per cent cheaper than TCS) new look Infy is the cornerstone of my defence.
Motherson Sumi: The three-pronged strength across its 3 lines with mid-to-high-teens earnings growth in standalone (led by volume and value) and SMR (led by market share gain, slight margin expansion) brings a steady head to the backline. High endurance training is also leading to significant Ebitda margin expansion for SMP/PKC and would result in multi-fold rise in earnings of these two subsidiaries.
Bajaj Finance: Earnings keep compounding for this stallion which is still shy of considering itself a big boy. Strong cross selling capabilities making core product an acquisition tool, long runway in underpenetrated market, strong management team, well managed execution and scalable businesses will keep overall growth higher than peers. A rock in the defence with clear visibility on earnings.
The goalkeeper: A safe no-frills option to do the job.
PowerGrid: Choosing from the PSU Club maybe unpopular, but given its regulated ROE model, and strong earnings visibility through FY21, PGCIL is safe as a house. A strong balance sheet and impeccable track record of clean sheets give it stability to stop any surprise attack of private competition. Also, its low risk model makes it best positioned to stop the penalties of global volatilities of liquidity crunch/portfolio reallocation. Very cheap (10x PE with 3% yield ) price gives it the gloves.
And finally the coach
PM Narendra Modi. A year back it seemed his position was sealed for a long term. But recent events at home have jolted his long term hopes a bit. Still loved by players, but popularity is dwindling. Need his team to fire to get back the confidence.
If you want a few more stock ideas, here are your substitutes:
Equitas: A forward with immense potential but seems to be less communicative on its role of MFI, SFB or NBFC. Also now shrugging off its provisioning injuries it should be well fit to ride the operating leverage to gain superior RoEs. A bit more faith shown by investors should see this kid take star status.
Ujjivan: Another kid to have graduated from the MFI academy but growing faster than Equitas. Very tempting option if you do not trust the old legs of L&T to score.
Asian Paints: Another expensive defender but worth its price tag with unmatched distribution network and leadership position. Proven ability to defend margins with price hikes makes it a first change if the formation needs to change to 5-3-2.
Zee: An attacking midfield option, which will benefit from sharp recovery in ad spending in India.