Rajen Shah of Angel Broking is developing a record for consistently picking winning stocks. His last stock pick (26.02.2014) was Tata Power. He confidently assured investors that they would get a return of 25%. At today’s CMP of Rs. 102, investors are beaming at a 33% gain (in just 3 months).
Now, Rajen Shah’s latest stock pick is Trent Ltd. Once again, the logic is impeccable. Lets see it:
(i) Since August 2013, the stock has not budged at all even though the Sensex has surged from 18,000 to 24,000, giving a return of 30%+;
(ii) The reason why investors are shunning Trent is because though Tesco has invested Rs. 850 crore into Trent’s subsidiary (Trent Hypermart) under the Foreign Direct Investment (FDI) regulations, there is a fear that the FDI permission may be cancelled;
(iii) However, knowing NAMO’s approach, this fear is unrealistic. A roll-back in the FDI in retail is most unlikely. NAMO’s government will not do anything which will shake the confidence of foreign investors in India. On the other hand, they would go out of the way to facilitate foreign investment in India. An example of NAMO’s approach is when Ratan Tata’s Nano project was thrown out by Mamta Bannerjee, NAMO invited him to come to Sanand, Gujarat.
Rajen Shah expressed confidence that nothing would go wrong with Tesco’s investment in India. He also pointed out that while Tesco, is the second largest player in the World with sales of USD 120 billion and market cap of USD 41 billion, Trent was a fledgling with a market cap which is less than USD 1 billion.
Rajen Shah also emphasized that with the organised business seeking to grow at about 25-30 percent plus over the next 10-15 years, Trent could be a very interesting story to play. He also pointed out that while the risk in the stock is hardly about 5 percent, the upside could be as high as 50 percent over the next one year.
Rajen Shah’s analysis is brilliant but the question is whether NAMO will really be able to help Trent. The BJP has, in its election manifesto, declared that it will not allow multi-brand retail on the basis that small traders need to be protected. If NAMO goes against the Manifesto, he will be attacked by small traders of robbing them of their livelihood. The last thing NAMO wants is to be attacked by the common man. So, the thinking is that NAMO may tweak the FDI rules to find some middle path by which he can balance the interests of the foreign investors and the small traders.
However, what NAMO will do, and when he will do, are all open questions. Also, several States are not in favour of FDI in retail. There will be a firestorm of protests across the Country if any hint is given that FDI in retail is being allowed in some form or the other.
The other point worth noting is that Trent is already quoting at a P/E of 44 times its FY13 EPS of Rs. 20.34. So, how much is the upside if things work out and how much is the downside if they don’t is anybody’s guess.