Indian stocks: three long-term winners the market has missed

Professional investor Nitin Bajaj of the Fidelity Asian Values trust picks three of his favourite Indian stocks to buy now.

I have a simple investment philosophy: buy good businesses run by competent and honest people, and buy them at a price that leaves enough of a margin of safety for mistakes or bad luck. I try to buy companies that other people are not looking at. That is where I find bargains and an adequate margin of safety. This process tends to lead me away from big stocks.

As a result, Fidelity Asian Values has most of its capital deployed in small companies (those with a market capitalisation of up to £5bn); stocks above that threshold only make up about 20% of the trust’s holdings. The trust also has a value bias given my focus on companies that are mispriced, either because they are yet to be discovered by investors or are currently undervalued owing to near-term concerns. 

With value-investing out of favour, the current market offers unprecedented opportunities to invest in good companies at competitive prices, while demanding patience in the near-term. Several stocks in our portfolio, despite delivering good operating performances and being undervalued, have not appreciated, as a narrow group of stocks in a few sectors have carried the market. 

But our stocks’ long-term prospects remain promising. If investors can find businesses capable of growing revenues while earning high returns on capital, and purchase them at an attractive price, they will go a long way towards attaining their financial objectives. 

A profitable power player

Among the stocks being ignored by a market focusing on growth stocks is Power Grid Corporation of India (Mumbai: POWERGRID), one of our largest holdings. Power Grid is a high-quality, regulated monopoly for electricity transmission in India and has an enviable track record of growth, stability and return on equity (a key gauge of profitability). The stock is trading on less than eight times earnings, yields 6% and will grow profits this year, despite Covid-19. Irrespective of its strong fundamentals, the stock has been sold off owing to the pandemic.

Financial stocks you can bank on

Similarly, high-quality private-sector banks in India have underperformed so far this year and trade at appealing valuations. HDFC Bank (Mumbai: HDFCBANK), the largest private-sector bank in India, is one of the trust’s top holdings. 

It has an impeccable track record of consistently delivering growth superior to the rest of the industry and has maintained the best asset quality among banks across several economic cycles. It has an excellent management team, strong systems and processes, and enjoys a low cost of funds. Another key holding, Axis Bank (Mumbai: AXISBANK) is India’s third-largest private sector bank. It has one of the best liability franchises in the country and only HDFC Bank boasts a lower cost of funds. Its ratio of current accounts to savings accounts (Casa), another way to gauge banks’ costs and profitability, is slightly better than HDFC Bank’s. 

It also has one of the best returns on assets in the industry. These banks will come out of this challenging operating environment in a stronger position than their peers, particularly the inefficient government-owned banks, and gain market share in the process.

Recommended

The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
The new social-care levy: an unfair tax that protects the “assetocracy”
National Insurance

The new social-care levy: an unfair tax that protects the “assetocracy”

The government’s regressive social-care levy will make Britain’s tax system even more complex. Root-and-branch reform is long overdue.
18 Sep 2021
Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Cryptocurrency roundup: litecoin blunder, cardano update and bitcoin mining in Laos
Bitcoin & crypto

Cryptocurrency roundup: litecoin blunder, cardano update and bitcoin mining in Laos

Saloni Sardana looks at the week’s biggest stories in the world of cryptocurrencies.
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021