Fund managers enhanced exposure to certain themes which are seeing fundamental changes.
Getty ImagesWith the BJP-led government returning to power, asset managers at large fund houses enhanced their exposure to companies which have a presence in infrastructure and capital goods.
With the BJP-led government returning to power, asset managers at large fund houses enhanced their exposure to companies which have a presence in infrastructure and capital goods. Besides, fund managers also enhanced exposure to certain themes which are seeing fundamental changes in terms of improving business situation. One such theme is insurance.
Here is a low-down on five companies which saw high interest from fund managers in May when compared to their investments in April this year.
One of the key reasons why the stock of diversified construction company Larsen & Toubro has attracted high interest from fund managers is the order book growth of its short-cycle projects. The company has been able to beat order inflow guidance, which has enthused analysts and fund managers alike. Also the company’s healthy order book of Rs 3 lakh crore gives high confidence for strong cash flow visibility for the next three years. Besides, the company’s diverse geographical presence, high focus on large projects (high return on equity), and its superior execution capabilities, have encouraged analysts to raise their earnings’ estimates for the next two years in the range of 15-20%.
Low penetration in the Indian markets, strong brand, parent partner with a vast distribution network and barriers to entry, given the initial investment required in such business, make insurance a strong proposition in India. Fund managers believe HDFC with its range of life insurance plans ranging from life, education, health insurance, ULIPs, savings and investments could be a long-term structural growth story over the next decade. The company clocked a 15% growth in profit before tax at Rs 1,277 crore for the financial year ended March 2019. It earned a total premium of Rs 29,186 crore in 2018-19, a growth of 24% over the previous year. Its assets under management, stood at Rs 1,25,552 crore as of March 31 showing a strong 18% growth from last fiscal.
With an order book of over Rs 12,200 crore, PNC Infratech is one of the few road construction companies which is placed well in terms of high revenue visibility. The order book gives visibility for the next four years. Besides, the asset light nature of its business model and encouraging order inflows for the present fiscal have encouraged fund managers to enhance exposure to the company’s stock. It is estimated that the company is expected to record order inflows (incremental order book) in the range of Rs 7,000-8,000 crore for FY20. Given these factors, analysts are factoring an earnings per share (EPS) growth of 15-20% for the company for the next two fiscals.
There are a few factors which served as good investment rationale for managers to enhance their exposure to BEL, which produces equipment in sectors such as defence communication, radars, naval systems, homeland security, and telecom & broadcast systems. First, the company’s attractive valuation and its better-than-expected March 2019 quarter numbers. The company’s stock fell close to 9% in April this year, which triggered interest. Besides this, with the current government’s focus on defence, the company is expected to earn large-ticket size projects from the government in the present fiscal. Also, the company has a robust order book of Rs 51,800 crore, which gives revenue visibility of at least four years. In addition to this, the company expects high value order inflow of Rs 8,000-8,500 crore in the next six months, which adds to the company’s revenue growth. Analysts are estimating high earnings growth of 15% for the company for FY21.
With expectations of a revival in the capex cycle, some fund managers believe BHEL, the country’s dominant producer of power and industrial machinery and a leading EPC company, could be a good bet. It has manufacturing capacity of 20GW spread across multiple factories in India for thermal, hydro and gas projects. Key triggers for growth in earnings for BHEL are revival in thermal power capex, award of large projects on nomination basis and a drop in competitive intensity which can lead to better realisations.
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