Where to Invest in 2022

After a stellar performance of the equity markets in 2021, it is time to take stock of the market and decide what strategy needs to be adopted for the coming year. Will it be a year where gold outperforms equity? Will Sensex deliver double-digit returns or will it be a flat year for the markets? Whether small caps will outperform once again in 2022? Yogesh Supekar attempts to answer the most pertinent questions facing investors while Karan Bhojwani shares his insights with a technical perspective on markets even, and the DSIJ Research Team provide their top 10 picks for 2022. 

If 2020 was a good year for equity investors, 2021 has proved to be even better. Very few investors gave a thumbs up to equity at the beginning of the year (2021) because of the steep recovery seen in equity markets in 2020 itself. The argument made by several market observers was that markets have run up a lot in 2020 and hence may struggle to deliver more than double-digit returns in 2021. However, that was not the case as the recovery in the economy was much better than expected and equity markets gained owing to a combination of sharp economic recovery and extremely high liquidity in the system aided by a record low-interest rate environment.

As we focus on 2022, similar doubts on equity market performance are seen resurfacing. After two consecutive years of outperformance, there are expectations from market participants that 2022 could be a year where the equity markets go sideways and struggle to deliver a higher double-digit return. According to Dr Prashant Mishra, a long-term equity investor from Mumbai, “I think equity markets will do well in 2022 as well. Equity market is a massive wealth creation opportunity and India is emerging as a new destination in the manufacturing segment be it chemicals, electrical equipment, electronics, textile or pharma. Current government’s initiative in the form of a PLI scheme with a focus is on clean and renewable energy viz., Ethanol, Gas Infrastructure, Solar and Wind Energy, and Electric Vehicles. I prefer to invest in microcap companies because once you identify a quality microcap company with good management and a trustworthy promoter it can contribute handsomely to your portfolio. The trick with microcap stocks is to not buy in one go. I usually buy some quantity of shares and then check the performance of the company and then increase allocation depending upon the performance. I expect microcaps to do well in 2022 as well. I am betting on micro-cap companies and companies in the pharma sector, renewable energy sector, EV sector and textile sector to outperform in 2022.”

No doubt the clean energy sector and EV sector is seen as an investment hotbed in India, but why would micro-cap, smallcap and mid-cap companies outperform in 2022 and beyond?

In the words of Gunavanth Vaid, a Chartered Accountant from Chennai, who has been successfully investing in micro-cap and small-cap companies for over a decade now, “The writing is on the wall when it comes to understanding the growth opportunities for small caps and mid caps. There are so many companies with underutilized capacities and now with the economic recovery and supply chain issues faced globally there is a huge scope for the manufacturing sector in India to monetize the spare capacities. It is a huge event for the smaller companies as the capacities expand and underutilized capacities are put to work. If I am not wrong the capacity expansion is at 20 years high in India. One needs to take a two-to-three-year view on broader markets and hunt for companies with reasonable promoters, a strong balance sheet and with good demand for their products. From my years of experience in investing in equity markets, I can share that micro-cap and small cap investing is built around "3 C’s”. Conviction (to build around a micro-cap management), Courage (to buy and hold on to stock against all odds) and Concentration (Concentrated portfolio holding). Those who can master these "3 C’s” will come out as winners in 2022 and beyond while investing in broader markets. I strongly believe the broader markets may outperform in 2022 as well.”

Broader markets have indeed shown promise in 2020 and 2021 as well. It will be interesting to see if the broader markets once again outperform in 2022. The outperformance of broader markets could be extremely interesting because it is their outrun that may attract new investors and retail investors alike who have been instrumental in absorbing the funds' outflow of FPIs.

The confidence of investors is sky high now and the maturity, investors have shown during market dips in 2021 has been exemplary. The year 2022 may however test the same set of investors who have chosen to hang on during the market corrections.

Markets in 2021
The Indian equity market was indeed one of the best-performing share markets in 2021 if we consider the performance of large markets. Several records were broken in 2021 as BSE Sensex managed to cross an important psychological mark of 50000 for the first time and then eventually cross 60000 levels within record time.

If FIIs relentless selling was one of the highlights of the equity markets in India in 2021 it was the resurgence of the retail investors and first-time investors in equity markets that took many by surprise. Indeed, it was one of the rare years in the history of Indian markets where the FII flows, and market performance was seen delinked. The ability of the Indian market to not only attract but absorb foreign capital is clearly one of the brightest spots for the Indian markets in 2021. Another highlight of the equity markets in 2021 has been the performance of penny stocks. We could find that at least 365 penny stocks more than doubled in 2021 alone while there are at least 85 penny stocks listed on BSE that gained more than 500 per cent in 2021 alone.

What is also interesting to note is that there are at least 150 stocks that doubled in 2020 and managed to more than double in 2021 as well, thus turning out to create wealth for the investors since the pandemic hit us.

The market outperformance was led by least expected sectors such as Real Estate, Metals, Capital Goods and Consumer Durables. FMCG, Pharma and Auto stocks underperformed in 2021 while IT continued its uptrend from the previous year.

IPOs in 2021
The primary issue market has hit an all-time high with 63 corporates raising Rs 1.18 trillion through main-board initial public offerings (IPOs) so far in 2021. This is nearly 4.5 times more than the Rs 26,613 crore raised through 15 issues in 2020.

The top 3 best-performing IPOs have been Paras Defence and Space Technologies Limited which gained 185 per cent on the listing day and 292.17 per cent on a YTD basis. It was followed by MTAR Technologies and Nureca Limited. The worst 3 performing IPOs were reported to be Suryoday Small Finance Bank, CarTrade Tech and Windlas Biotech which recorded negative returns of 52.23 per cent, 48.85 per cent and 42.26 per cent, respectively on a YTD basis. The IPO pipeline continues to remain strong with 35 companies awaiting SEBI approval for raising about Rs 50,000 crore and another 33 are awaiting the SEBI nod to raise about Rs 60,000 crore. This is apart from the anticipated LIC IPO that should top a trillion mark. The year 2022 promises to be an eventful year for IPO investors.

I N T E R V I E W

Pradeep Gupta
Co-Founder & Vice Chairman, Anand Rathi Group

 "Portfolio Strategy Must Be Driven By Long-term Goals and Objectives"

What is your outlook on small caps and mid caps for 2022?
After underperformance during 2018 and 2019, small and mid-caps have outperformed large-cap stocks during 2020 and 2021. The extent of the attractiveness of small/midcap versus largecap both in terms of superior earnings growth and relative valuation is not going to be as pronounced in 2022 as in 2021. Consequently, we think the price performance of small/midcap in 2022 would be broadly in line with large caps in 2022. In addition, given considerable uncertainties and a likely increase in market volatility in the next 12 months, large caps may be preferred especially over small caps in 2022. In the medium to longer-term, however, mid-cap companies, in particular, are likely to deliver better risk-adjusted returns over large caps.

This, however, is a top-down call. At the individual stock level, there can be more opportunities in the small/midcap space vs large caps, especially given the price corrections since August 2021.

Will the market deliver double-digit returns in 2022?

On a longer time, horizon, largecap equities deliver 10 per cent-14 per cent return per annum. With the improvements in India’s macro and corporate fundamentals since the second half of 2020, the possibilities of receiving such returns from the Indian equity market has only improved. That said, it does not mean that equities would provide double-digit returns every year. With a 15 per cent+ return in 2020 and even better returns in 2021, the possibility of equity return being slightly below the long-term return in 2022 is a distinct possibility.

One should not expect similar kinds of returns that were delivered in the last two years, yet we believe that equity as an asset class is still set to deliver a 9 per cent-12 per cent kind of upside in 2022. The up and downside risks to this return expectation seem to be evenly balanced at this juncture.

Which sector stocks in your view will outperform in 2022?

In the last decade, consumption-theme stocks seriously outperformed investment theme stocks. This has reversed especially since the second half of 2020. We expect the continuation of the same in 2022. Accordingly, we prefer infrastructure, construction, capital goods, cement, building materials.

We are also positive on IT-tech given that under the post-pandemic new normal, the earnings growth trajectory of most of these companies would be better than the pre-pandemic averages. Despite some likely near-term headwinds, we like financials, especially private sector banks, from a 12-moth perspective.

What portfolio strategy may best work in 2022 according to you?

We think asset allocation by any investor should be under factors such as risk appetite, return expectation, investment horizon and, expected fund in/outflow for that particular investor. This is the key to a successful portfolio strategy. Once this asset allocation is decided by the investor by an informed, data-driven and balanced methodology, until and unless there is extremely compelling reasons, investors should not tinker with such allocation. This, however, does not mean the portfolio should not be rebalanced periodically.

For example, since equities have seriously outperformed all other asset classes in 2020 and 2021, the effective share of equity in the portfolio may have gone well above the planned allocation if the investor was already following actual asset allocation in line with the desired allocation. In such a situation, if the gaps between the actual and strategically planned allocations are considerable, the investors should consider bridging such gaps.

Portfolio strategy must be driven by long-term goals and objectives rather than shorter-term market movements and sentiments. In our analysis and assessment, this is the best portfolio strategy over the longer term and we would recommend the same for 2022 as well.

Technical Perspective on Markets

Calendar Year 2021 has been a remarkable year for the Indian equity markets as the NSE benchmark Nifty 50 index has recorded gains of about 21 per cent, which is the highest since 2017. With this stupendous performance, the index has extended its winning streak for the sixth straight year. Having said that, we are ending the CY2021 on a jittery note amid a myriad of concerns that has clouded the market participants’ sentiments, though greed still continues to be the dominant factor driving individual investment strategies.

So, let us look through the lens of technical analysis what is in store for investors in the Calendar year 2022.

After rallying for nearly 147 per cent from the March 2020 lows to all-time high levels of 18,604.45 registered in October 2021, the index has entered into a corrective phase. During this corrective phase, the index breached its important support one after another. Firstly, it had breached its 10-week moving average and then, it breached the upward rising trendline joined by connecting lows of September 2020 and July 2021. Also, after registering a lifetime high of 18,604.45, the Nifty 50 index had been forming a sequence of lower highs and lower lows and any pullback rally is being seen resisting at the downward sloping 10-week moving average. This indicates discomfort of participants at the higher levels and in fact pullbacks are being used to lighten positions or rallies being sold. Meanwhile, the index is currently trading above its other important moving averages on the weekly chart i.e., 30 and 40-week moving average.

The RSI is hovering around the 50-mark; however, an interesting observation is that the RSI on the weekly chart is also forming a sequence of lower highs and lower lows, which is in sync with the structure of the price. Furthermore, the 14-period weekly RSI is seen sustaining below its nine-period average, which is not a good sign. The weekly MACD is bearish and below the signal line. The -DMI has crossed over the +DMI and given a negative signal. Furthermore, the historical trend suggests that after six consecutive years (2002-07) of gain, in the seventh year the Nifty 50 index has delivered a negative return.

The 40-week moving average is likely to act as strong support, which is placed around the level of 16,370-16,380. Failure to hold above this level would open gates for a correction towards 15,450-15,500 in the medium term. Any cool-off towards these levels should be used as a buying opportunity for the up-move towards 18,500-19,000 levels. 

DSIJ Portfolio Performance

DSIJ’s ‘Where to Invest’ portfolio has a track record of beating the benchmark indices on a consistent basis. The 2021 portfolio successfully managed to outperform both BSE Sensex and BSE 500 indices by a decent margin despite the volatile and tizzy market conditions that prevailed over the year. The portfolio recommended for 2021 has delivered 29.89 per cent gains, while BSE 500 index is up by 28.85 per cent and BSE Sensex has gained 21.22 per cent in 2021 as of December 23. Stocks such as Federal Bank, Cholamandalam Investment and Finance Company, Mindtree and Infosys have been the star performers of the DSIJ 2021 portfolio, furnishing profits of more than 50 per cent each. The pharmaceutical theme also played out well during the year. Profits of 41.96 per cent and 35.36 per cent were booked in Ajanta Pharma and Divis Laboratories. Amara Raja Batteries disappointed and is the only portfolio stock to deliver negative returns. Here is the detailed performance of the ‘Where to Invest in 2021’ portfolio 

Preferred theme for 2022 In the CY2021, cyclical's like Realty and Metals have outperformed the defensive sectors like FMCG and Pharma, implying that, greed dominated fear in 2021. However, in 2022 we expect defensive like Nifty Pharma to end its relative underperformance and show resilience. Why do we say so?

Nifty Pharma registered an all-time high of 14,938.25 in October 2021. Thereafter, the index corrected nearly 13 per cent from its all-time high and this correction halted around the 50 per cent Fibonacci retracement level of the up move from 11,280.80-14,938.25. Interestingly, this level coincides with the bottom of the ascending channel. Going forward, we expect the pharma index to touch the upper end of the ascending channel. Also, the weekly RSI is seen rebounding from the 40-mark. Also, Nifty Pharma has entered the improving quadrant of the RRG when benchmarked against the broader Nifty 500 index. This hints at a potential end of relative underperformance of this sector against the broader market. Hence, keep a close watch on the pharmaceutical space for CY 2022.

Conclusion
The expectation should be muted in 2022. We say this as the headwinds are clear for the markets. They are in the form of rising interest rates probability, inflation worries, rising raw material prices, supply disruptions, covid spread uncertainties, policy actions and lockdown threats, market valuation on the higher side and strengthening US Dollar.

However, what can provide some respite to the bulls is the fact that the market has already discounted most of these negatives. Healthy correction witnessed in December could also mean the markets have already seen some of the correction that was due in 2022.

As inflation will persist, it is easy to note that the prices of the product may increase for several companies in the coming year. It is crucial to distinguish those companies with higher pricing power than the others. Companies such as building materials, paint, cement, glass and real estate related companies have so far demonstrated their ability to increase sales despite a rise in product prices. Such companies with superior pricing power will remain in focus in 2022.

Overall, the story looks positive for the defensives i.e., Pharma and IT stocks. The other stories that promise to create opportunities for investors in 2022 are the EV story, semiconductor space and speciality chemicals. Already, the stocks in the semiconductor space are seen multiplying in value especially if one looks at the performance of ASM Technology. Such bottom- up stories that can create wealth for investors can be the theme for 2022.

The year 2022 could be the one where the bottom-up approach can reward investors better as one can expect the rally to be narrower in 2022 when compared to 2020 and 2021, assuming there is a rally that is.

To assist investors with stock selection, we have come up with a list of our own top ten stock picks for 2022. Turn for the recommendations.

Bharat Electronics Ltd.

CMP (Rs ): 208.70
BSE CODE : 500049
Face Value (Rs ) : 1
Mcap Full ( Rs  Cr.) : 49,718.68

Bharat Electronics Limited (BEL) is a Navratna PSU under the Ministry of Defence, Government of India, which provides advanced products and systems for military, government and civilian customers. Primarily established to meet the specialised electronic equipment requirements of the Indian defence services, the company currently has a significant presence in the civilian market as well. The consolidated quarterly financials of the company reveal that net sales and other operating income for Q2FY22 grew by 15.11 per cent to Rs 3,678.05 crore from Rs 3,195.24 crore in Q2FY21. Q2FY22 operating profit stood at Rs 926.39 crore, up by 41.48 per cent in comparison to Rs 654.77 crore in Q2FY21.

Net profit soared by 56.50 per cent from Rs 399.01 crore in Q2FY21 to Rs 624.46 crore in Q2FY22. This was largely on the back of very sharp inventory gains resulting in lower capital blocked in the working capital cycle. The order book position of the company as of October 2021 stands at Rs 54,627 crore. On the annual front, the company reported net sales and other operating income in FY21 of Rs 14,108.69 crore, exhibiting a surge of 8.8 per cent relative to Rs 12,967.67 crore in FY20. Operating profit climbed 16.88 per cent from Rs 2,853.86 crore in FY20 to Rs 3,335.47 crore in FY21. Net profit for FY21 came in at Rs 2,069.34 crore, registering a gain of 15.44 per cent from Rs 1,792.63 crore in FY20. 

Despite the pandemic challenges, the company achieved significant growth in revenues with greater emphasis on research and development, technology upgrades and constant infrastructure modernisation. They have been able to reduce geographic concentration risk by being able to generate 21 per cent of top-line from products manufactured through ToT (Terms of Trade) from foreign OEMs. The company has a robust order book, is almost debt-free and has been maintaining a healthy dividend payout of 42.59 per cent. Also, the government’s emphasis on ‘Make in India’ and self-reliance initiatives in the defence sector furnishes a vista of opportunity for the company to enhance indigenization efforts as well as capitalise on novel emerging opportunities. Hence, we recommend BUY.

Dr Reddy's Laboratories Ltd.

CMP (Rs ): 4,693.25
BSE CODE : 500124
Face Value (Rs ) : 5
Mcap Full ( Rs  Cr.) : 77,198.70

Dr. Reddy’s Laboratories is an Indian multinational pharmaceutical company located in Hyderabad, Telangana. The company was founded by Anji Reddy, who previously worked in the mentor institute Indian Drugs and Pharmaceuticals Limited. Through its portfolio of products and services, the company operates in multiple therapeutic areas. Of these, the major ones are gastrointestinal, oncology, cardiovascular, pain management, central nervous system (CNS), respiratory and anti-infective. The company is present in several countries across the globe, with the key geographies being the US, Europe, India, Russia, Commonwealth of Independent States (CIS) countries, China and other markets.

Taking into consideration the financial performance of the company on a consolidated quarterly basis we can see that net sales improved to Rs 5,786.90 crore in Q2FY22 as compared to Rs 4,910.90 crore in Q2FY21. Q2FY22 registered an operating profit of Rs 1,565.30 crore in Q2FY22 as compared to operating profit of Rs 1,207.30 crore in Q2FY21. The quarter saw a net profit of Rs 971.10 crore in Q2FY22 as compared to net profit of Rs 764.5 crore in Q2FY21. On an annual basis the net sales and operating income rose by 8.74 per cent from Rs 17,517 crore in FY20 to Rs 19,047.50 crore in FY21. The operating profit was seen to go up by 34.63 per cent in FY20 as compared to FY21 whereas the net profit on an annual basis was seen dipping 3.37 per cent in FY21 to Rs 1,903.60 crore as compared to Rs 1,969.90 crore in FY20.

The numbers of gross margin, selling, general and administrative expenses, research and development as well as capital expenditure depict that along with driving productivity the company is keen in investing in future growth. The filings across the markets by the company have increased while there has been improvement in costs. Improving return metrics and strong balance-sheet gives the company an opportunity to grow further. There is a consistent generation of strong cash flows along with a reduction in debt-to-equity ratio depicting cash surplus and providing strength for expansion. Going forward, multiple avenues provide the company good visibility for long-term sustainable growth. The company also evaluates inorganic growth opportunities across the markets and value chain. Hence, we recommend BUY.

Galaxy Surfactants Ltd.

CMP (Rs ): 3052.55
BSE CODE : 540935
Face Value (Rs ) : 10
Mcap Full ( Rs  Cr.) : 10,852.17

Galaxy Surfactants is one of the leading players in the segment of surfactants and specialty care ingredients exclusively focused on catering to the home and personal care industry. It is an Indian MNC that manufactures 200+ products and caters to 1,750+ customers in 80+ countries. The company operates with seven state-of-the-art plants with five manufacturing facilities in India, one in Egypt and one in USA.

Since 2010 the company has grown threefold in volumes, fourfold in EBITDA and fivefold in profits over the last decade, maintaining ROCE of more than 22 per cent. The company is poised to be India’s largest manufacturer of oleo chemical-based surfactants and speciality care products for the home care and personal care industries. A look at the financial performance of the company on a consolidated quarterly basis indicates that net sales and operating income gained 22.07 per cent to Rs 877.30 crore in Q2FY22 as compared to Rs 718.68 crore in Q2FY21. Q2FY21 gave an operating profit of Rs 75.91 crore in Q2FY22 as compared to operating profit of Rs 126.09 crore in Q2FY21, dipping by 39.8 per cent.

The quarter reported a net profit of Rs 41.94 crore as compared to a net profit of Rs 81.74 crore in the same quarter in the previous year, a decline of 48.69 per cent. On an annual basis the net sales were seen improving by 7.23 per cent from Rs 2,596.38 crore in FY20 to Rs 2,784.06 crore in FY21 whereas the operating profit zoomed by 22.64 per cent in FY21 as compared to FY20. The net profit on annual basis emerged Rs 302.14 crore in FY21 as compared to Rs 230.41 crore in FY20, an increase of 31.13 per cent. Migration from crude-based to oleo chemical-based surfactants and shift towards sulphate-free mild surfactants are the drivers that shall play out in revenues. The company believes that macro trends will enable continued secular growth. Pandemic-led elevated awareness of hygiene needs has given a leg up to the growth of surfactants. Growth and increased affordability in the developing markets of India and AMET would provide impetus to increase consumer base and per capita consumption. Going forward, the company visualises strategic priorities like digitisation of business and operation, enhancing cyber security capabilities and investing and developing technologies that enable safe and sustainable consumption. Hence, we recommend BUY. 

HCL Technologies Ltd.

CMP (Rs ): 1,227.30
BSE CODE : 532281
Face Value (Rs ) : 2
Mcap Full ( Rs  Cr.) : 3,43,305.77

HCL Technologies Ltd. is a leading global IT services company. It has a portfolio of services that include software-led IT solutions, remote infrastructure management, engineering and research and development services and BPO. The company is also in the business of IT services, infrastructure services and business process outsourcing services. It is among the top 20, largest publicly traded companies in India with a market capitalisation of USD 50 billion as of September 2021. The company, along with its subsidiaries, had consolidated annual revenue of Rs 71,265 crore.

The company’s quarterly consolidated financials recorded an operating profit for Q2FY22 of Rs 10,579 crore as compared to the operating profit of Rs 10,369 crore for Q2FY21. Net sales for Q2FY22 stood at Rs 40,723 crore as compared to net sales of Rs 36,436 crore recorded in Q2FY21. The company logged a net profit of Rs 6,476 crore in Q2FY22 as compared with Rs 6,081 crore recorded in Q2FY21. Evaluating on an annual basis, in FY21 the net sales have increased 6.65 per cent to Rs 75,379 crore as compared to Rs 70,676 crore reported in FY20. The operating profit increased by 17.15 per cent to Rs 20,975 crore as compared to an operating profit of Rs 17,905 crore posted for FY21. Net profit for FY21 was recorded at Rs 11,169 crore, giving a substantial decline from Rs 11,057 crore recorded in FY20. One space that has held up very clearly in terms of the earnings outlook has been IT despite the fears and uncertainties created by the pandemic.

The stock is currently trading at a reasonable valuation which is at a steep discount to its peers. Strong deal pipeline, strong profitability, solid operating cash generation and zero debt status could re-rate the stock which can eventually result in reduction of difference between HCL Tech valuation and other IT companies. Its promoters held 60.3 per cent stake in the company, while FIIs held 24.1 per cent, DIIs 10.5 per cent and public and others 5 per cent. Sustainable demand momentum for cloud and digital engineering benefits HCL Technologies given its large presence within IMS and ER and D and continued investments in capabilities. Strong headcount additions and deal wins reflect the management’s confidence in sustainable growth momentum. Hence, we recommend BUY.

Kajaria Ceramics Ltd.

CMP (Rs ): 1,226.80
BSE CODE : 500233
Face Value (Rs ) : 1
Mcap Full ( Rs  Cr.) : 19,451.05

Kajaria Ceramics is the largest manufacturer of ceramic and vitrified tiles in India. It has an annual aggregate capacity of 70.40 million sq. metres distributed across eight plants – Sikandrabad in Uttar Pradesh, Gailpur and Malootana in Rajasthan, Vijayawada and Srikalahasti in Andhra Pradesh and three plants in Gujarat. The company also manufactures and markets bathroom solutions such as sanitary ware and faucets under the ‘Kerovit’ brand. Kajaria Plywood (P) Ltd., a subsidiary, initiated its presence in the plywood sector in FY18 to offer wood panel products under the brand name ‘Kajaria Ply’

Taking into consideration the financial performance of the company on a consolidated quarterly basis, its net sales and other operating income rose by 36.64 per cent to Rs 973.55 crore in Q2FY22 as compared to Rs 712.51 crore in Q2FY21. Q2FY22 operating profit stood at Rs 187.61 crore in Q2FY22 as compared to an operating profit of Rs 148.48 crore in Q2FY21, up by 26.35 per cent. The net profit came in at Rs 119.32 crore as compared to net profit of Rs 89.64 crore in Q2FY21, surging by 33.11 per cent.

On an annual basis, net sales and other operating income contracted marginally by 0.97 per cent from Rs 2,808.01 crore in FY20 to Rs 2,780.90 crore in FY21. The operating profit was seen rising by 20.47 per cent in FY21 at Rs 530.12 crore as compared to Rs 440.05 crore in FY20.

Furthermore, net profit soared by 21.84 per cent from Rs 253.3 crore in FY20 to Rs 308.90 crore in FY22. In FY22 the company has planned three brownfield expansion projects. The combined investment is estimated at Rs 250 crore which will take the total manufacturing capacity to 82.80 million sq. metres. The additional capacity is expected to be operational in FY22. The company continuously invests in improving the efficiency of its manufacturing facilities while ensuring the safety and reliability of its operations. Over the years, it has strengthened operations through a combination of organic and inorganic growth initiatives. Its pan-India manufacturing presence enables it to effectively capitalise on regional preferences. Hence, we recommend BUY.

Kolte-Patil Developers Ltd.

CMP (Rs ): 294.10
BSE CODE : 532924
Face Value (Rs ) : 10
Mcap Full ( Rs  Cr.) : 2,205.27

Incorporated in 1991, Kolte Patil Developers is a leading real estate company with dominant presence in the Pune residential market, and growing presence in Mumbai and Bengaluru. The company has developed and constructed over 50 projects including residential complexes, integrated townships, commercial complexes and IT parks covering a saleable area of ~20 million square feet. The company markets its projects under two brands: ’Kolte Patil’ (addressing the mid-income segment) and ‘24K’ (addressing the premium luxury segment). As per the consolidated quarterly financials of the company, Q2FY22 net sales and other operating income stood at Rs 303.78 crore, up by ~4.7 times from Rs 64.58 crore reported in Q2FY21.

Q2FY22 operating profit was Rs 58.43 crore relative to an operating loss of Rs 6.67 crore registered in Q2FY21. The company reported net profit of Rs 20.49 crore in Q2FY22 as compared to net loss of Rs 23 crore in Q2FY21. However, we must keep in mind that low base effect is at play here due to lockdown restrictions in the country during certain months in FY21. In terms of annual financial performance, net sales and other operating income de-grew by 38.76 per cent from Rs 1,129.50 crore in FY20 to Rs 691.74 crore in FY21. Likewise, operating income contracted by 71.80 per cent from Rs 280.55 crore in FY20 to Rs 79.11 crore in FY21. The company reported net loss of Rs 3.84 crore in FY21, relative to a net profit of Rs 99.70 crore in FY20.

The number of distressed land deals has surged with increasing recognition of the benefits of tying up with larger branded developers with access to better borrowing costs and superior pricing power. Interestingly, the organised developers account for less than 10 per cent of market opportunity and only 15-20 per cent of the directly addressable market in the prominent urban clusters. The company intends to capitalise on this opportunity through a series of property launches. Kolte Patil is a trusted name with a reputation for high quality standards, design uniqueness, corporate governance, transparency and timely delivery of projects. Hence, we recommend BUY.

Mahindra & Mahindra Ltd.

CMP (Rs ): 826.65
BSE CODE : 500520
Face Value (Rs ) : 5
Mcap Full ( Rs  Cr.) : 1,01,009.39

Mahindra and Mahindra is the flagship company of Mahindra Group that has widespread business interests across the globe. It is one of the most diversified automobile companies in India with a strong presence across two-wheelers, three-wheelers, passenger vehicles, commercial vehicles, tractors and earthmovers. As regards the quarterly consolidated financial performance of the company, net sales and other operating income for Q2FY22 were Rs 21,469.80 crore, indicating a rise of 11.67 per cent as compared to net sales and other operating income of Rs 19,226.81 crore for Q2FY21. The operating profit for Q2FY22 was reported to be Rs 5,157.66 crore which exhibited an increase of 16.48 per cent as against Rs 4,428 crore reported for Q2FY21.

The net profit for Q2FY22 was Rs 2,031.54 crore as compared to net loss of Rs 95.11 crore for Q2FY21. Looking at the annual trend, net sales and other operating income were reported to be Rs 74,277.78 crore for FY21, dropping by 1.46 per cent as against Rs 75,381.93 crore for FY20. In FY21, operating profit rose by 3.44 per cent to Rs 14,709.66 crore as against Rs 14,220.26 crore for FY20. The company reported net profit of Rs 235.73 crore in FY21 as against net loss of Rs 1,348.28 crore in FY20. The company is a pioneer for electric vehicles (EVs) in India and is actively pursuing the development of the EV market, products and technology.

In FY21, the company launched ‘Treo Zor’, a cargo threewheeler that provides a clean, sustainable and affordable solution for last-mile delivery. The company is also investing over Rs 3,000 crore in its EV programme and is also launching two new products in the upcoming year – ‘Atom’ for emerging new India and ‘eKUV100’ as the country’s most affordable compact electric SUV.

The key growth drivers for the company include increasing affordability, emergence of newer technologies, growth in demand, increasing government spending in the rural sector and continued focus of the government on improving the state of agriculture in India. Hence, we recommend BUY.

Muthoot Finance Ltd.

CMP (Rs ): 1,493.35
BSE CODE : 533398
Face Value (Rs ) : 10
Mcap Full ( Rs  Cr.) : 59,082.56

Registered as a ‘systemically important non-deposittaking non-banking financial company’ (NBFCND-SI) with the Reserve Bank of India (RBI), Muthoot Finance is India’s largest and most trusted gold financing company (by loan portfolio). They have revolutionised India’s gold banking and primarily cater to individuals who possess gold jewellery but cannot access formal credit within a reasonable time, or for whom credit may not be available at all. They also offer a wide range of other products and services to their customers such as home loans, vehicle loans, personal loans, corporate loans, insurance services, etc.

The consolidated quarterly financials of the company reveal that total income grew by 8.52 per cent from Rs 2,824.19 crore in Q2FY21 to Rs 3,064.81 crore in Q2FY22. Operating profit increased by 6.84 per cent, from Rs 2,288.05 crore in Q2FY21 to Rs 2,444.56 crore in Q2FY22. Net profit for Q2FY22 came in at Rs 1,002.87 crore for Q2FY22, up by 7.74 per cent from Rs 930.80 crore in Q2FY21. On the annual front, the company reported 19.15 per cent jump in total income, from Rs 9,707.27 crore in FY20 to Rs 11,566.42 crore in FY21. Operating profit surged 24.11 per cent from Rs 7,492.47 crore in FY20 to Rs 9,298.77 crore in FY21. Net profit for FY21 stood at Rs 3,168.68 crore as against Rs 3,818.87 crore in FY20, registering a growth of 20.52 per cent.

The company has delivered a robust profit growth of ~36 per cent (CAGR) over the last five years and has a healthy return on equity (ROE) track record of ~27 per cent over the last three years. They have also been maintaining a healthy dividend payout of 21.13 per cent. The company has been able to maintain a solid leadership position in the retail financial services business due to their large geographic footprint, committed workforce and customer-centricity. The organised gold loan markets though still constitute only minority of the overall Indian gold loan market which is expected to grow exponentially during 2021-25 because of the growing number of financial institutions providing gold loans to the under-banked population. Hence, we recommend BUY.

State Bank Of India

CMP (Rs ): 461.95
BSE CODE : 500112
Face Value (Rs ) : 1
Mcap Full ( Rs  Cr.) : 4,07,720.88

State Bank of India (SBI), a Fortune 500 company, is an Indian multinational, public sector banking and financial services statutory body headquartered in Mumbai. The rich heritage and legacy of over 200 years accredits SBI as the most trusted bank by Indians through generations. It has spread its presence globally and operates across time zones through 229 offices in 31 foreign countries. 

On the quarterly front, the net interest earned by the bank in the second quarter of FY22 increased 10.65 per cent as compared to net interest earned in the corresponding quarter of the previous fiscal. Profit after tax rose by 66.73 per cent to reach Rs 7,627 crore in Q2FY22 as compared to Q2FY22. For Q2FY22 the net NPA ratio stood at 1.52 per cent, down 7 bps YoY whereas gross NPA ratio was recorded at 4.90 per cent, down 38 bps on a YoY basis. The capital adequacy ratio (CAR) at the end of Q2FY22 was 13.35 per cent even without including H1FY22 profit.

If we add the profit of H1FY22, the ratio will improve by 61 bps. Interest earned by the bank in FY21 came in at Rs 2,65,151 crore, an increase of 3.04 per cent from Rs 2,57,324 crore in FY21. The net interest income earned by the bank in FY21 was Rs 1,10,710 crore, an increase of 12.87 per cent from Rs 98,085 crore earned in the previous fiscal. Profit after tax in FY21 increased by 40.88 per cent to reach Rs 20,410 crore as against Rs 14,488 crore in FY21. The bank reported GNPA ratio of 4.98 per cent for FY21 and 6.15 per cent for FY21. In FY21, the CRAR ratio was 13.74 per cent whereas in FY21 it was 13.06 per cent.

The banking sector performed well in terms of earnings in 2021. The new financial architecture created by digital assets will have profound consequences for banks by revolutionising how money is created, transferred, stored and owned. The bank also saw non-interest income growth driven by growth in fee income and AUCA recovery. The bank’s cost to asset ratio is among the best in the industry. SBI has consistently delivered double-digit ROEs for FY00–FY15 i.e. 15 per cent plus ROEs for 10 years. The bank continues to focus on improving income streams with control on costs. Hence, we recommend BUY.

Tech Mahindra Ltd.

CMP (Rs ): 1,683.75
BSE CODE : 532755
Face Value (Rs ) : 5
Mcap Full ( Rs  Cr.) : 1,67,248.25

Tech Mahindra offers IT services and solutions to the telecommunication sector across the world. The company is a leading telecom-focused provider of IT services and solutions to the global telecommunication industry, encompassing telecom service providers, telecom equipment manufacturers and independent software vendors. The company serves a broad spectrum of customers in the telecom ecosystem. The company is also engaged in business process outsourcing and telecom equipment manufacturing. Looking at the company’s quarterly consolidated performance, we can see that the operating profit for Q2FY22 stood at Rs 2,277.30 crore as compared to operating profit of Rs 1,820.50 crore for Q2FY21.

The net sales for Q2FY22 stood at Rs 10,881.30 crore as compared to net sales recorded in Q2FY21 which stood at Rs 9,371.80 crore. The company recorded net profit of Rs 1,341.70 crore in Q2FY22 as compared to net profit of Rs 1,062.70 crore recorded in Q2FY21. On the annual front, the performance of net sales has gone up to Rs 37,855.10 crore for FY21 from FY20 net sales reported at Rs 36,867.70 crore. The operating profit stood at Rs 7,583.40 crore as compared to operating profit of Rs 6,701 crore for FY21. The company has incurred net profit of Rs 4,351.80 crore for FY21 as compared to net profit of Rs 3,902.90 crore for FY20.

Tech Mahindra has continued with its pace of large deal wins. It is well-positioned to expand the share of 5G network services and the company is experiencing a large deal strategy and customer-led approach. The growth was led by digital engineering, cloud, manufacturing and hi-tech 5G-led sector picking up.

Also, this rise can be attributed to two strong reasons: strong quarterly numbers and expected business growth in the next one to two years due to India-made 5G rollout in India. It has net cash of Rs 98.3 billion as well as more liquid assets than liabilities. And it impressed us with free cash flow of Rs 60 billion. Q2FY22 revenue was Rs 1.05 trillion. Hence, we recommend BUY.