Fifty days after the government’s decision to replace the Rs 500 and Rs 1,000 notes, fund managers of leading asset management companies have adopted a stock-specific approach for bettering the returns of their portfolios. They are now shuffling their portfolios keeping in mind a slowdown in consumption and low earnings growth in 2017. Due to the bottom-up stockpicking, a common factor that runs through the investments of these fund managers is to look at those companies which would remain resilient or relatively insulated from the negative impact of demonetisation.
HUL
Hindustan Unilever’s (HUL) portfolio of consumer staples works in its favour at a time when sales of consumer companies are expected to be impacted by demonetisation. HUL has wide presence through its 3 million outlets. The company has lower dependence on wholesale part of the industry in comparison with its peers.
ENGINEERS INDIA (EIL)
EIL’s guidance for order infl ow stands at Rs 2,500-3,000 crore for the current fiscal. It has already bagged orders worth Rs 2,253 crore in the fi rst half of FY17. At the end of Dec 2016, it had an outstanding order-book of Rs 5,096 crore, 64% of which is from consultancy projects and balance from the turnkey projects. On the basis of the current order backlog, EIL provides a revenue visibility for the next three years.
ESCORTS
Escorts has installed a capacity of 1 lakh tractors per annum. It earns 80% revenue by selling tractors. Around one-third of the income of a tractor owner depends on non-agricultural activities. To address this requirement, the company launched multi-purpose anti-lift tractors (ALTs). These tractors now contribute 10% to total sales volume. In December, the company recorded a 16% growth in tractor sales as opposed to 8% industry growth. The company has kept low inventory, and its retail and wholesale remained brisk. Due to these factors there has been high interest in the stock.
POWER FINANCE CORPORATION (PFC)
Over the next one year, PFC is expected to maintain its market share in state electricity board (SEB) loans. One of the key factors that make PFC attractive is its return ratios. The company’s return ratios are far superior than most mid-sized public sector banks. Analysts estimate that the company’s loan growth is expected to show a compounded annual growth rate (CAGR) of 4-10% in FY16-20. PFC trades at a sharp discount to its peers despite a healthy RoE, which interests fund managers.
UJJIVAN MICROFINANCE
No single state contributing more than 20% of its gross AUM and a pan India presence have attracted fund managers to this company despite the industry being hit hard by demonetisation. In addition to loan products, Ujjivan also provides non-credit offerings comprising life insurance products, which diversifies its offering.