“Pain is the hammer of God, molding man to greatness” Rajen Shah said, in his CNBC-TV 18 interview, suggesting that the pain that companies were presently experiencing due to poor economic growth, weak currency, political uncertainty, high interest rates, non functional governments etc would make them more efficient and productive.
“Why have the FIIs invested USD 12 Billion in the last three months” he asked while reminding investors that the present “sale” which is going on in the stock market may not last long and that investors had to rush to buy into the quality midcap stocks which were down between 25-30 percent. He emphasized that this is a great time to accumulate very good quality companies at 5-7 kind of PE multiples and one should really jump into buy, if necessary by selling gold and real estate assets.
Rajen Shah first recommended stock pick was Aditya Birla Nuvo, which is expected to apply for a banking license in the name of Aditya Birla Financial Services. The valuations of the stock had fallen about 15-20% from Rs 1,175 levels to Rs 975. He argued that Aditya Birla Nuvo was quoting at reasonable valuations of about 10 times FY 2014 earnings. He also pointed out that the promoters had invested Rs. 550 crore to raise their stake from 49% to 54% by subscribing to 67 lakh shares at a price of Rs 910 each. He also pointed out that though in the past five years, Aditya Birla Nuvo’s earnings had tripled, it was today quoting at a valuation that was 50% of the valuation then.
Rajen Shah second stock pick was Bajaj Finserv due to its 74 percent stake in the insurance subsidiaries Bajaj Alliance General and Bajaj Alliance Life. It also has about 60-62 percent in Bajaj Finance, which was also a candidate for a banking license. Bajaj Finserv’s valuations of about ten times next year earnings was also very reasonable, Rajen Shah said.
Rajen Shah third stock pick was Mahindra & Mahindra (M&M). The kind of models they are coming out with that is going to do wonders to their top line and bottom-line he said and pointed out that M&M has shown very strong growth over the past 12 months.
Rajen Shah emphasized that the fact that M&M had been able to grow even when the auto industry is going through a crisis of a significant slowdown in sales showed its strength. Escort also came in for mention from Rajen Shah thanks to its growth in bottom line by 200 percent and increase in margins. He also pointed that the steep fall in stock price from Rs 76 just about two months back to the current levels of Rs 49 made it interesting.
Rajen Shah fourth stock pick was Reliance Industries. He pointed out that at the present market price of Rs 772, it was quoting at about 11 times the next year earnings. Reliance was expected to show very strong growth in the next few years with a bottom-line growth of at least 15-17 percent he said. Rajen Shah opined that Reliance Industries could do even better if the gas pricing works in its favour and apart from the retail business which was growing very strongly at about 35% plus growth, even the petrol pump business was going to take off with diesel decontrol happening over the next 18 months. There was very strong upside in Reliance Industries, Rajen Shah said.