|
|
20th June 2012 |
Stocks are cheap despite tough macro conditionsShiv Puri
|
|
|
- A number of companies are now trading at deep discounts to historical valuations.
- Many sell side analysts are extrapolating the current activity forward which we believe will be incorrect.
|
|
A number of companies are now trading at deep discounts to historical valuations. Many infrastructure and construction companies are trading at half of book value, given the cyclical slowdown as well as leveraged balance sheets. While in some cases balance sheet leverage makes it unattractive, we believe there is value in some of these businesses with decent balance sheets. These companies will emerge from this downturn with a lot of work to execute (given all the project delays) and with fewer competitors. This usually translates into strong pricing power that extends for several years. Given the sharp rupee depreciation, many of the manufacturing companies in India should benefit from import substitution. We believe significant investment opportunities exist in companies that are may be facing temporary demand headwinds but have differentiated product or technology, strong management and are trading at or around book value.
Many sell side analysts are extrapolating the current activity forward which we believe will be incorrect. In the banking sector, strong regional franchise private sector banks are trading at between 1.0x-1.2x book value primarily on concerns on asset quality and growth. Private sector banks that can manage their asset quality offer great value.
|
|
Disclaimer: This material contains the opinions of the individual and such opinions are subject to change without notice The information contained on this website is provided for information purposes only and does not constitute or form part of and should not be construed as an offer to sell or an invitation to subscribe or any invitation to offer to buy or subscribe for any securities. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.
|
|
