Forget macros

India is becoming a very theme-specific investment story

For the last 7 years since the sub-prime crisis, the Indian market has been a macro play. The markets were driven more by global fund flows and news flows. How the US Fed set interest rates and managed liquidity became important. The crisis in Greece and therefore in Europe, became the staple diet for Indian market analysts. A lot of that could be quietly changing. Within sectors that are stretched, specific companies are making an effort to position themselves differently. And the results are showing in stock prices! But what are these specific themes?

Beating the auto slowdown…

There is a silent change that is happening within the four-wheeler space. As auto companies struggle with weak rural demand and high financing rates, two companies are positioning themselves differently. Maruti learnt that the only way to capture the auto story is to keep launching new brands, variants at lower prices. More value for money was the answer to the auto sector’s problems. M&M, realizing the limits of its MUV strategy, is shifting focus to defense and broad-basing its auto strategy. In both cases it seems to be working in value terms.

Adding panache to bikes…

Two-wheelers in India has been a very focused game. Sturdy vehicles, fuel efficiency, brand upgradation, rural markets and a young audience were the themes. It played out for a full 3 decades. The one two wheeler that is creating value today is not in that space. The Royal Enfield Motorcycles of Eicher have captured a very selective premium market and shows no signs of slowing down. Not surprisingly, the stock has appreciated 100 times in last 6 years.

Ruling the food basket…

The fast moving consumer goods (FMCG) companies have faced tremendous pressure over the last few years. Wafer thin margins in the foods business and weak rural markets were the reasons. Within this space, one stock appreciated 700% in the last 4 years. Britannia expanded margins with a focus on the premium biscuits segment and managed to grow its rural markets faster than its urban markets. Once again, a case of a single stock outperforming the overall sector!

Something is changing…

That is the good news! Indian markets are not only about global macros. There are companies within weak sectors that are outperforming with a better strategy, superior product mix and a smarter approach to positioning. Eicher, M&M, Maruti and Britannia are just cases in point. For investors, the message is to look for companies that are breaking old business rules. A treasure chest may be awaiting them! ©

You can ask us your stock related questions with #AskReligareOnMarkets via our Twitter channel @religareonline

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