World Cup portfolio: IIFL picks winning combo of 11 'players' for investors

The ICC Cricket World Cup starts from May 30. Unlike the damp green tops that normally greet batsmen in England, the pitches this time around seem to be soaking in the sunshine, promising many a run-fest.

Marking the day, IIFL in a report has selected 11 stocks or the Dream Team portfolio for investors that could reap runs until the next general elections.

“The mood is equally sanguine in the Indian markets, with the ‘Captain’, PM Modi, ardently padded up for his second innings. And so, we take a shot at selecting a team of world beater stocks, not only for the tournament but perhaps till the next elections or next World Cup,” IIFL said in the report.

Below is the list of ‘players’ selected by IIFL that could make a winning combination for investors:

OPENERS

These are our high alpha generators, thumping the new ball in the power play on sentiments and once they get their eye in, capitalizing on early signs of a cyclical recovery.

Larsen & Toubro:

This infra giant, even in a challenging environment, has perfected its technique through an RoE & cash flow-focused approach to merit a top order inclusion. Its strong balance sheet coupled with a large order book (2.7x TTM sales) makes it conducive to an aggressive stroke-play towards efficiently executing complex and large projects.

State Bank of India:

Virtually plagued into retirement with NPA injuries, the nation’s biggest bank is now back with much gusto, mainly buttressed by clarity on trends of stressed asset formation and imminent resolution in certain accounts in NCLT.

Its appetite to score with higher ROA has returned, with several levers to NIM expansions—better LDR, stable CASA ratio and redeployment of balance sheet liquidity into loans. Still very cheap (1x P/B), it will certainly re-rate (quite swiftly) and is powering into attaining consensus inclusion in most teams.

MIDDLE ORDER

This comprises players who could augment a good start and become high earners in a cyclical upturn. And, if the macros peg down the openers, these players would give stability and consolidation to build momentum and provide a late acceleration when fundamentals improve in the slog overs.

HDFC Bank:

Coming in at number three, this is the spine of the team. Though of late, a slowdown in retail loans was viewed as a chink in its armor, HDFC Bank’s strong operating efficiency and low cost of funds place it in the best position to navigate any bouncers.

With its very strong distribution network and brand, it would also ensure consistent deposit mobilization, allowing it to be the sheet anchor. As it is ensconced in an excellent competitive position, the law of averages on valuations will not catch up and its stupendous record will only compound.

We expect it to notch a hundred billion in USD market cap shortly, and emerge as the strongest contender for being the first Indian company to hit the double century mark in the next 4-5 years.

Gujarat Gas:

Unlike the Indian team, there is no confusion here on who should be the number 4. Having been confined too long hours in the nets, building up retailing licenses and CNG capabilities at the cost of missing out on the T20-style frenzy, this mid-cap performer has suddenly rocketed into the reckoning.

On the back of strong operating and execution credentials, GGAS is well poised to double its volumes by FY23/24. Robust RoE, strong balance sheet and a massive growth opportunity make the GGAS stock a compelling middle order pick.

Deepak Nitrite:

Having doubled its aggregate (EPS) last year, Deepak Nitrite is in the amazing form to showcase another sturdy year driven by a smooth ramp-up in capacity utilization in phenol and strong growth in the standalone business.

RoCE and RoE should also significantly improve, to the high 20s, making it our ‘X factor’ player in the line-up. It is still very cheap (12x P/E) and hence, the risk-reward is reasonable to merit its inclusion.

ALL-ROUNDERS

Equally dexterous with both, the bat and the ball, these players can lend the final momentum to innings and provide those crucial bowling breakthroughs.

Also, if there is a cyclical downslide, they can hold the innings together in a solid partnership with less aggressive players, as their earnings come from multiple sources.

Reliance Industries:

An Oil & Gas batsman, a telecom tearaway fast bowler or eagle-eyed retail fielder…this is truly the three dimensional (3D) cricketer every selector dreams of. RIL can merit selection in the team on any parameter.

Its refining and petrochemical business will continue providing stability to the lower order; Jio will keep hitting the deck hard and troubling the batsman as it heralds towards an EV of $100 billion, decimating most competition; and the stimulus would be from R-Retail, which is coming into its own now and will make the main difference on the field, with its worth rising in the overall value of RIL.

Tata Global Beverage:

For the past few years, Tata Global has been a bits-and-pieces dasher, appearing in small global T20 leagues, but not really unearthing its mojo.

However, it has been identified by the Tata’s as their protégé for becoming the consumer face in India. It is highly ambitious and shows a lot of faith in the rookie.

Already, the bowling dexterities of Tata Chemicals have been rapidly imbibed. The merged all-rounder would have growth drivers across time horizons. With 75 percent of the consolidated business coming from India, a re-rating is imminent.

WICKETKEEPER

This includes a no-frills safe option that does not let anything slip by. It holds on to chances offered in an upcycle and protects the portfolio if the middle order crumbles.

ICICI Lombard:

The disciplined conservative style makes this player safe as a house. New changes in playing conditions brought about by regulations have favored its style of play and allowed it to focus on profitability over growth.

ICICI Lombard is a good long-term compounding story. Apart from standing solidly behind the stumps, it will keep accumulating the runs from improving GDPI/combined ratios.

BOWLERS

The pundits have divined that the World Cup will be won not by the team with the best batting, but with the finest bowling. In a sentimental upcycle, with most positives seemingly priced in, the same could be said about the guardians of the portfolios − the bowlers who would defend the stellar 300-plus scores, to bowl that crucial outperforming 49th over in a marauding global slowdown!

Bajaj Finance:

Undoubtedly among the world’s finest players! In times when nagging regulations and conditions, with liquidity squeeze and various headwinds, have reduced its NBFC peers to bowling machines lying butchered all around the park, Bajaj Finance has not deviated from its core strength.

It maintains a startlingly resilient control of its line and length, regarding the cost of funds and operating expenses. Super rich valuations are warranted, as it remains on track to deliver over 40 percent profit CAGR and maintain more than 3.5 percent RoA. Its slower-delivery, HFC, is also improving well, adding another dimension to its lethal repertoire.

RBL Bank:

From being a one-dimensional pitcher, RBL is likely to witness a sustained increase in scale and profitability for the next few years and graduate into a whole time fast bowler, set to rub shoulders with the big banks.

A well-set management team, clearly articulated strategies, focus on sectors with high-growth potential, ability to acquire adequate deposits and access to equity capital help it in clocking a consistently high pace (growth).

Tech Mahindra:

When facing an aggressive rising dollar, Tech Mahindra is the ideal bowler to pitch the perfect yorker. But this performer is not just a defensive, one dimensional, death-over specialist, as growth led by telecom should drive a re-rating with Tech Mahindra still being at a discount to peers.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

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