2013 to be a year of themes

While rate and reforms are obvious, there are several others that will help create new multi-baggers

The year 2013 is likely to be a very interesting one from an equity investment point of view. So far, the index has already returned 25 per cent in the current year, but the road ahead will not see a secular rise in the markets. As growth recovers gradually, select businesses and companies, and not necessarily sectors, will do better than others. So this year, equity strategists have a tougher job as betting on sectors will not generate alpha, but betting on the right theme will.

The market is expecting several themes to play out in 2013, which will have a cascading effect on corporate India. While rate and reforms are obvious themes, many strategists are going beyond these and looking at niche themes, which will benefit select companies in a big way. Bank of America Merrill Lynch is betting on the three Rs — rate cut, rollout of reforms and recovery in economic growth. Till the presentation of the Union Budget in February 2013, the brokerage is overweight on rate sensitive sectors like autos (Maruti and Tata Motors), financials (ICICI Bank, HDFC Bank and YES Bank), telecom, pharma (Lupin and Glenmark) and real estate (DLF).

Some other brokerages are going beyond the obvious. Goldman Sachs is betting on “smart spenders” or companies which plan to invest their cash pile for expansion. Reliance Industries fits the bill as the company is planning to invest in expanding capacities in petchem and refining. The brokerage sees near doubling of marketcap over the next four years, as a result of this. The other theme that Goldman Sachs is betting on is the “product cycle wave” for Tata Motors, which will enter a new phase of growth in 2013.

Ambit Capital has put out very interesting themes for the year ahead, as India undergoes a socio-economic churn. For starters, the brokerage believes in the face of rising prominence of institutions, politically-connected companies will continue to underperform. So, don’t expect companies in the oil & gas, real estate, heavy manufacturing, public works and mining to outperform.

Apart from this, there are a host of small and medium companies which are expected to do well. There are some companies that do not get tracked by institutions as they are “hard to meet” and managements don’t speak to analysts. Ambit says: “Investors are losing out by staying away from names such as Bayer Cropsciences, Torrent Power, Wabco, Greaves Cotton, Bata, VST and MRF. The performance record of these companies is spectacular – in absolute share price terms most of them are compounding over one, three, five and 10 years at 30-40 per cent per annum.” From broad macro themes to micro, there are plenty of choices that investors will have in the New Year.