Valuations are still reasonable:
Shiv explained that the markets are presently quoting at a P/E of 15/16 times earnings, which is quite reasonable. He also pointed out that foreign flows were half of what they were last year.
Also, if the GDP growth goes back to 6-7% (from the present 5.4%), revenues of individual companies will grow by 15-17%. Operating leverage will lead to an increase in operating margins, he explained.
Don’t omit to buy a top-quality stock in the misconception that it is “expensive” on a P/E basis:
Shiv pointed out that top-quality stocks like Pidilite and Bosch looked expensive on a P/E basis but one had to bear in mind that their earnings would increase and compound at 25% for the several years to come.
Shiv explained that if one picks stocks of great businesses, with good management, high ROE and free cash flows, he would stand to make much more in the long run.
Bullish on private financial service companies:
Shiv made the interesting point that though top-quality stocks like HDFC Bank appear to be quoting at lofty valuations, they are franchises which are well worth the price. He explained that though HDFC Bank has a market capitalisation of $38B, this was small in the context of the total scale of the Indian economy. He added that given its track record, HDFC Bank would continue to grow at a steady pace and become a much larger business in the foreseeable future.
Home mortgage business & Repco Home Finance:
Shiv opined that there is humongous opportunity in the home mortgage business but that investors had to be careful that they choose a company that lends sensibly.
Also, NAMO’s ‘housing for all’ promise meant that the sector would see immense growth.
Repco Home Finance came in for special mention from Shiv as a stock whose valuations are reasonable in the context of its growth opportunities.
Case study on Repco Home Finance:
Shiv has also written a detailed case study on why Repco Home Finance is a great buy at this stage.