Stocks of these 27 companies are flying high & they have one thing in common
By The Economic Times
Having deleveraged balance sheets like never before in the COVID-struck FY21 period, India Inc’s debt reduction exercise continued, and at least 27 companies brought down their net debt-to-equity ratio to below 1 level in FY22.
This deleveraging helped corporates navigate the challenges such as high costs, rising working capital, and profitability pressures this year, and even stick to their capital investment plans.
From a debt-to-equity above 4 in FY21, real estate major Macrotech Developers NSE 1.48 % and restaurant-chain operators Devyani International NSE 2.15 % have brought it well below 1 in FY22.
At least 100 companies with a market capitalisation of more than Rs 1,000 crore have brought down their debt to negligible levels.
Be it large-cap companies like Grasim Industries NSE 0.62 %, Tata Steel NSE 0.41 %, and Vedanta, or smaller firms like Gokaldas ExportsNSE 1.22 %, Indo Rama Synthetics NSE -0.97 %, and Camlin Fine Sciences NSE 2.37 %, there has
been broad-based clean-up in the balance sheets.
“Our corporate balance sheets are strong with RoEs for corporate India around 14-15%. The leverage (debt: equity) of top NSE-500 companies, excluding financials, have fallen to 37% in FY22,” Vinit Sambre, head of equities at DSP Mutual Fund, told ETMarkets.
Interestingly, the debt is at negligible levels for several firms.
If one looks at the stock performance, most of them have given positive returns consistently in the last three years. Industrial equipment maker Elpro International, GMM Pfaudler, Inox Wind, Asahi India Glass, Indian Hotels, and Blue Dart Express have given double-digit returns in the current financial year despite the volatility in the market.
CAPEX BOOST
The corporate sector leverage is at a cyclical low, with India among the few countries globally seeing a double-digit decline in corporate debt to GDP ratios.
The deleveraging gave the much-needed thrust to private sector capital investments, as companies, particularly in the capital-intensive sectors, announced massive capacity expansion plans.
The total capital investment plans announced by listed private companies touched an all-time high of Rs 7 lakh crore on a trailing twelve-month basis in September, compared with Rs 6.4 lakh crore in FY22, ICICI Securities NSE -1.08 % said in a note.
“Stability in commodity prices post the spike seen at the beginning of Russia-Ukraine conflict and expectations of peak interest rates going ahead have mitigated the key potential risks to the CAPEX cycle,” the brokerage said.
In 2023, Jefferies expects private-sector spending on capital investments to rise.
WHICH STOCKS CAN DO WELL IN 2023?
A healthy balance sheet and buoyant expansion plans of companies in the energy, power, mining, infrastructure, construction materials, real estate, digital infrastructure, and PLI-incentivised sectors have bolstered the outlook for their stocks.
For most money managers who are today betting big on India’s manufacturing thrust, stocks in the above-mentioned sectors are their preferred picks for 2023.
The small case manager and founder of Niveshaay Arvind Kothari is betting on smallcap stocks such as Shivalik Bi-metal, Elecon Engineering NSE -1.39 % and Borosil that could be major beneficiaries in the areas of green energy and manufacturing.
Shivalik Bi-Metal and Elecon shares have given positive returns for three years in a row and their debt-to-equity ratio remains well below 1.
For fund manager Sachin Shah of Emkay Investment Managers, Blue Dart Express is a major bet within the logistics space, while for Jefferies India, DLF and Godrej Properties NSE 1.76 % are the top picks in the realty space.
“We strongly believe in the power of compounding and, therefore, we are truly long-term when it comes to portfolio holdings,” Shah told ETMarkets.
