Friday, August 24, 2012

Contrarian view: Domestic institutional investors see opportunity in Bharti Airtel, Maruti Suzuki stocks

India's institutional investors have been buying significantly into Bharti Airtel and carmaker Maruti Suzuki over the past six months, although the stocks were heavily beaten down. They, apparently, prefer to take a contrarian bet on these companies at a time when their valuations are at historic lows.

Shareholding of domestic institutional investors such as mutual funds and insurance firms in Bharti rose to 8.4% from 8.2% in the first six months of 2012, with mutual funds being the main acquirer. This was despite India's largest telecom company battling a slide in margins, slowing revenue growth in its African unit and a spate of downgrades by brokerages.

Fund managers who spoke on condition of anonymity, because they are barred from discussing specific stocks, said they are looking at a contrarian investment opportunity in Bharti stock, which sank to a near six-year low on Wednesday.

Saurabh Mukherjea, head of equities at Ambit Capital, believes Bharti's stock price will firm up in the coming quarters. Sankaren Naren, CIO, ICICI Prudential Asset Management, reckons that the entire telecom industry is an attractive investment bet considering that there is still latent demand for telecom services in the country.

In the first six months of the year, institutional investors moved out of quite a few heavyweight stocks as many companies, especially capital goods firms, have faltered in the face of policy paralysis and lack of approvals stalling infrastructure projects.

State-run Bhel, a favourite with mutual fund managers earlier, is now shunned. The company's June 2012 quarter results showed that at Rs 1.33 lakh crore, its order backlog was at its lowest since September 2009.

After selling Bhel, many institutional investors have bought into L&T. However, Bhel's dirt-cheap valuations appear to have attracted some foreign institutional investors and local banks, which have raised their holding in the company.

While FII holding in Bhel rose from 12.2% to 12.9% during the first half of 2012, local banks have increased their stake from 1% to 4.6%. This comes as a bit of a surprise considering that earnings visibility for Bhel is quite weak, with the current order backlog providing it comfort for just a couple of years. What has prompted local fund managers to raise their exposure to L&T is its well diversified business model, growing global presence and surprisingly good set of financial numbers over the past two quarters.
The combined shareholding of local institutional investors and foreign portfolio investors in Bhel rose to 52.5% from 51.6% during the first half of the year. L&T has an order backlog of over Rs 1.53 lakh crore, its highest till date.

With the consumption story still strong, fund managers are fairly bullish on the automobile sector. What has changed in the past few months is their choice of companies. While local fund managers are more optimistic when it comes to two wheeler companies such as Hero and Bajaj Auto, despite their muted sales volumes, foreign portfolio investors have reduced their exposure to both these companies because of slowing rural consumption, a weak monsoon and tax related issues in some export markets such as Sri Lanka.

FII shareholding in Hero and Bajaj has dropped by about 0.56 and 1.25 basis points, respectively, while the holding of local institutions rose by similar margins.

In the passenger car segment, while mutual funds raised their stake in Maruti Suzuki from 3% to 3.8% given its strong product portfolio, Tata Motors' global presence has made it an attractive investment for FIIs who have increased their stake from 24% to 27.7% in the January-June 2012 period.

In stark contrast to the belief that Maruti may have seen a flight of investors after the labour strife at Manesar, many local institutional investors have perceived it as a contrarian investment opportunity, and are gradually increasing their stake. "Many large investors believe that the Manesar issue was overplayed and see the panic-selling as a great buying opportunity," says Saurabh Mukherjea of Ambit Capital.
Source: http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/contrarian-view-domestic-institutional-investors-see-opportunity-in-bharti-airtel-maruti-suzuki-stocks/articleshow/15626175.cms?

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