A compassionate management’s drive to meet capex by restructuring has resulted in record-breaking forex reserves
What
attracts investors to a company can be a mystery. Besides the ability to
produce decent capital gains, a track record of hefty and consistent dividends
interspersed with bonus shares and occasional buybacks to support prices during
a turbulent phase might appeal many. Some are likely to mix and match past
actions and outlook to take a bet. Several with low risk-appetite stick to
sluggish stocks because of their transparent governance. At the same time, investible savings are
found to chase those whose tantalizing future promises a divorce from the rocky
past. Allocation can hinge on the promoters’ clarity of vision. Headwinds do
not inhibit if the challenges are viewed as temporary and openings to enter at
low levels. Premium over peers is not scary if there is conviction that it
arises from scarcity, product and marketing innovation, or pole position.
Despite the market’s tendency to categorize stocks into buckets of emerging and
beaten-down wealth creators, the hunt for growth cannot be exclusive of value.
A cyclical scrip’s expensive valuation can be a turn-off even when demand is
back. A fad is worth following if the price is not at a tipping point of
turning into a bubble. Now the puzzle is if businesses can be separated from
the countries in which they operate to assign discounting. Many companies’
credit worthiness is higher than the sovereign rating. Microsoft is perched
above the US. RIL’s investment grade contrasts with India’s negative outlook.
The fear of impact on operations by sudden political shocks recedes if these
are listed on exchanges insisting on high standards of disclosures. In return
for openness, they attract quality money, boosting their standing in the
marketplace.
Realizing
the indispensability of overseas funds to strengthen their social sectors,
developing countries are increasingly focusing on reforms and effective
grievance redressal. Though the competition to pull in dollars is fierce, India
has an edge. Its history of peaceful regime changes assures stability. After a
period of uncertainty from the late 1990s till the mid-2010s, it has got a new
management team. The generalization of being a back-office supporter can be
shrugged off on the reckoning that none of the Fang constituents (Facebook,
Apple, Netflix, and Google) can do without its huge market. The world’s
pharmacy, known to make cheap generics, is now demanding a seat at the table
with the big boys after rolling out an indigenous covid-19 vaccine around the
same time as by the developed world. Recently, all households were electrified.
Now the race is to ensure tap water and housing for all. The dominant share in
GDP of agriculture, whose resilience was demonstrated when rural purchases
offset the fall in urban consumption during lockdowns last year, is used to
underline the persistence of legacy weaknesses. Yet the leap to the top of the league
of countries ranked by number of digital transactions illustrates the
demographic dividend. The capex to modernize offers revenue visibility for manufacturing,
whose neglect is being sought to be addressed through Make in India,
Atmanirbhar Bharat and production-linked incentive schemes. India will be the
only country in the world to grow by high single digits this fiscal year.
Alongside
restructuring, including ramping up FDI limit in insurance to 74% and
multi-brand retail to 51%, divestment from non-strategic sectors and minimal
presence in four strategic sectors, India is tightening the compliance
architecture. The crackdown on delinquencies spares no one, be it the nation’s
richest man or intra-day traders. Fines have been imposed for previous
misconduct. Clients need to put up their own margins to scotch speculation. Their
securities can no longer be used by intermediaries for proprietary
transactions. Funds’ exposure to risky debt instruments is pegged to assets
under management. Credit risk will be as per the duration of the holdings as
well as the investment objective. The cleaning-up seems to be reaping yields. India
became the biggest recipient of foreign portfolio inflows among emerging
markets last fiscal year. Investment in equities of Rs 2.74 lakh crore is the
highest-ever, despite the fiscal deficit set to touch 6.8% of the GDP in FY
2022. The US$64 billion FDI in CY 2020 is the fifth largest in the world even
as global flows plunged 35% in the previous year. Forex reserves swelled more
than US$100 billion between April and March 2021 to cross US$ 600 billion
beginning June. What must be satisfying to big-ticket investors mindful of companies’
social responsibility is the transfer of cash to 400 million citizens and food
to 800 million from end March 2020 up to November 2021. India is a growth stock
with value proposition.
--Mohan Sule
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