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Portfolio Talk B U S I N E S S I N D I A r J u l y I 2 - 2 5 , 2 0 L 0'Domesticconsumptionwill takeoff'Prashant Patel, a stock market investor and founder of Equest,aMumbai-basedproprietary investment boutique, specialisesn deepvalue strategiesand themes;he hasbeen nvolved in researchand fundmanagement activity for the past decadeand a'half and has nteractedwith managements of over a L00companies.Patelspoke o Roy Pintoon the prospectsof the Indian market and investment avenues

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Everyoneseems o feel that the mar-ket couldgo down from current evelsin the short term. What'syour view?FY10has seen he market almost dou-bling and that too, quickly. Indiceshave been moving sideways, houghstock-specific activities have beenpicking up. The risehas beenbasedonre-rating of valuations from the lowbaseachieved in FY09,whereasearn-ings growth has been almost zero inFY10. The market climate currentlyseems o be an interplay of domestictailwinds and global headwinds.In the past few quarters, domesticmacro-economic indicators and cor-porate earnings have- ecovered fromlow bases and are looking healthy.Domestic consumption trends, ed byautomobile sales,have been encour-aging month after month. Structuraldrivers, along with trickling reformsand normal monsoon, have thepotential to increaseearning expecta-tions in Indian equities.Meanwhile,enough evidence is getting accumu-lated n global markets of rising risk ofa second leg of correction in theglobal economy and markets.But the question is, is there a bal-ance between risk aversion and therisk of missing an opportunity?Investors seem to be torn between'the risk of missing an opportunity'on the back of structural tailwinds inthe Indian economy and 'the risk oflosing money' on the back of struc-tural headwinds in the global econ-omy. Recent outperformance of theIndian equity market seems o indi-cate ising risk tolerance.On the otherhand,, isk aversion has not recededand there are enough investors con-cerned about global risk. There is agood balance in terms of investorbehaviour and there seems o be gooddiversitv of views. Markets become

dangerouswhen such diversity breaksdown. Continued outperfolmancecould evaporate the remaining riskaversion and take the market up by 5-10 per cent. But from there ofl,chancesof deepercorrection rise.The longer term India growth story isintact.What areyourviews?There are enough factors to supportstrong long-term structural economicgrowth. Domestic consumption willtake off in the coming few years,onthe back of a rising working popula-tion and per capita income. Just likethe US consumption growth in 1980sand China in 1990s, ndia's consump-tion market could explode soon. Morethan $50 billion is likely to be spentevery year on core infrastructurebuilding. This will have a multipliereffect on growth. Several structuralreforms will prove vital. Reforms inthe rural economy can add to long-term prospects. Inflation and slowerglobal capital flows could act asdampeners,but the broad socio-eco-nomic-political equation lookspromising; but does not necessarilymean higher equity returns.Which are the industries/sectors hatinvestorsshould watch out for?Investorscan focus on domestic playsand avoid global plays in general.Domestic consumption is likely to seegood traction, as we add another tril-lion dollars to our cpp in the next fewyears. Several mid-sized cities aregrowing rapidly, which may result inhealthy prospects or consumer prod-ucts - automobile, durable productsand fast-moving consumables. Withrising urbanisation and aspiration ev-els, leisure too should do well. Con-sumer finance and media will alsobebeneficiaries. The pharma sector

looks promising on the back of open-ing up of huge generic markets. Spe-cific opportunities are likely to arisefrom infrastructure investmentamounting to Rs3-4lakh crore.Which companies would yourecommend or investment?Despite educing the margin of safety,there are a few companies that lookattractive.Godrej Industries is a goodlong-term investment. Its currentmarket capof roughly Rs5,400crore sless han its holding value in GodrejConsumer and Godrej Properties.Ero Parry, the flagship firm of theMurugappa group, is.another decentlong-term investment. An integratedsugar player, it owns 63 per cent inCoromandel International and has a51 per cent;v with Cargill for a sugarrefinery. The current price of Rs410 sabout 2Oper cent less han the hold-ing value of Coromandel Interna-tional, and all other businessesareavailable for free.One small-cap stock worth investingin is Automobile Corporation of Goa.At a current market price of Rs230, hestock offers value. With an RoCEof anaverage3Oper cent-plus for the pastone decade, earnings yield of over1.2per cent and cAGR(sales) f 20 percent in the past five years, the stocklooks juicy. .

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