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    Posted July 21, 2014 by
    chetan2014
    Location
    Kolkata, India

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    Although Nifty and Sensex have toppled from their all-time highs and some views of technical experts have swayed, the growth story of Indian stock markets remain intact on a long-term basis. Some of the experts are even of the view that Nifty might double within 2 years. The railway budget was disappointing but the union budget presented by Mr Arun Jaitley has opened many avenues for investments and reforms. The top sectors which are likely to be highly benefitted from the union budget are power, infrastructure and housing finance companies.


    For almost a decade power sector had been cash strapped under heavy burdens of debt, low revenues and profitability. But this budget has opened up gates for subsidies and investments which will provide the much needed boost to the power sector. During Arun jaitley’s maiden budget speech, it was said that Rs 500 crore will be specially kept aside to provide round the clock electricity to all homes in India. One of the companies which will stand benefitted with the reforms and focus on renewable energy will be Tata Power.

     

    Tata Power is one of the largest power producing companies in India. As of now the company’s profitability is weak as the whole sector was under the debt pressure and making massive losses. However, since the power sector is undergoing a paradigm shift, the company is expected to make a turnaround this year. The PAT of the company changed the company’s fortunes in March 2013 when the company made profits of nearly Rs 100 crore compared to the loss of nearly Rs 1000 crore in the previous year. The company has a high debt equity ratio of 3.12 while the interest coverage ratio of the company is 2.59. FIIs have stake in the company to 25% – 26% in the company.

     

    The second most and probably the only sector which can kick-start the growth engine of India is the infrastructure sector. The union budget has hit the right chords by putting up an idea of introducing FDIs in infrastructure and introducing the system of single clearing system. In the UPA regime projects worth Rs 12 lakh crore were blocked, stagnating the growth of India. However, with the onset of new government infrastructure sector is expected to pick up growth, consequently increasing India’s growth. One of the emerging companies in this area is IRB infrastructure.

     

    In the past three months, IRB infrastructure has provided returns of nearly 125%, clearly outperforming Nifty by a huge margin. The backbone of this company is the robust order book. The company’s order book currently stands at Rs 12000 crore while its revenue has clocked nearly 12% year over year in FY13-14. The company is currently trading twice its Book Value. The company’s valuation is relatively cheap when compared to the sector. The company’s PE is 17.17x times compared to the sector’s PE of 28.90x times. The profitability of the company is all set to improve as the company has a very strong order book.

    Union budget has also introduced many changes that will make home loans cheaper for first time buyers. This will allow the middle class salaried man to purchase his own home. One of the companies that will benefit from this implementation is the LIC Housing Finance. LIC housing is a fundamentally strong company. The profitability and cash reserves of LIC housing has increased at an astounding pace. The interest coverage ratio and the debt equity ratio of the company is low, no doubt, but the current ratio of the company is impressive at 5.22. FIIs, relatively, have a larger piece in the company at 38%. Currently the company is trading twice its book value and comparatively lower than the sector’s PE. LIC housing has a PE ratio of 12.16x compared to sector’s PE ratio of 24.19x.

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