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In the five years since the 2008 Lehman crisis, capital flow in equities and returns have followed a cycle. Immediately after the crisis, investors switched their focus to the domestic demand story, leading to a sharp rally in consumer goods and automobile companies. That story began to wane by early 2012 as the rupee began to depreciate, on account of a rising current account deficit and economic slowdown in India. Export or dollar revenue-driven companies in pharmaceuticals, information technology and some auto makers became the new darlings for equity investors Tata Consultancy Services, Sun Pharma, HCL Tech, Dr Reddy's Lab, Tata Motors and Bajaj Auto touched new highs.
The market has completed a full circle. In the past month, money has begun to flow to investment demand-driven stocks in capital goods, construction & infrastructure, real estate and banking, away from export-oriented sectors. The trigger has been an improvement in the current account deficit, rupee appreciation and expectation of a 'market-friendly' government after elections. "The market sentiment has turned bullish in anticipation of an investment revival after the elections. This has resulted in a rally in capex-related and high-beta (those more sensitive to market moves) stock, while defensives have taken a breather," says Devang Mehta, senior vice-president and head-equity sales, Anand Rathi Financial Services. The rally was aided by low valuations of many of these high-beta names such as Larsen & Toubro, Bharat Heavy Electricals, ICICI Bank and Axis Bank.
The downside is that the markets have become volatile in the process and are betting on a growth scenario is not visible so far. "Lot of expectations have got built up because of the flat equity returns in the last five years. But reviving investment demand would take time and investors are advised to hedge their bets by investing in high-quality companies," says Nitin Jain, head, capital markets (individual client group), at Edelweiss Securities.
So, experts are advising investors to hedge their bets by investing in companies that will not only gain from growth revival in India but also participate in global growth. We have picked five such companies which have strong presence in both India and abroad. For example, Tata Motors is the domestic market leader in commercial vehicles, while its JLR division is one the fastest growing luxury car makers globally. Sun Pharma is one of the fastest growing generic drug makers globally, with strong presence in the US, the world's largest generic drug market. Noida-based Motherson Sumi is now a global player in car interior systems and has successfully turned around its European acquisitions. It's the same for Havells India, which acquired Sylvania in 2007. The latter accounted for 40 per cent of its revenues and operating profit in FY13. Bharti Airtel's African operations is back on a growth path, which if sustained, can make it the best bet in the telecom space.
