Is this current pre-election market rally for real? The stock markets have taken off post the announcement of the 2019 general election dates, with index financial shares leading the way and contributing largely to this bullish rally. The cumulative purchases of Indian securities by the foreign portfolio investors for the first three months of the current financial year have exceeded the total worth of equities sold by foreign portfolio investors in the whole of 2018. The bullishness stems from the fact that the BJP led government could come back to power at the Centre after the elections. Plus from the global perspective, the dovish policy stance adopted by various global central banks has helped fuel this Indian rally. The mood of the market is going to be excited in the next few weeks on the back of change in even the smallest of political developments. The full year results’ season starting in April 2019 should keep the market men’s mood upbeat and busy for analysing the company performances. We remain generally bullish on the IT and financial sector stocks for most part of 2019, but are hedging our bets by looking at the retail category companies. We particularly like Trent Ltd, a Tata Group entity as a safeguard to your investment portfolio during the next one year.
The Indian retail sector has emerged as one of the most dynamic and fast paced industries accounting for over 10% of the country’s GDP and around 8% of the employment generated in the country. India’s retail market is expected to reach the USD1 trillion magic figure in the next few years, mainly driven by growing urbanisation, growth in income and attitudinal shift in consumer behaviour. While overall retail trade is expected to grow at over 12% per annum, modern trade would expand by around 20% per annum and traditional trade at around 10% per annum. The Indian e-commerce market is expanding at a rapid pace driven by huge investment in the sector, rapid increase in the number of Internet users and faster adoption of online services. The government has taken several initiatives to improve the retail industry in the country by allowing 100% foreign direct investment in online retail of goods and services. There have been multiple possibilities that have increased the influence level of customer expectations through online shopping,
social networking, streaming media, online video on demand, net banking, mobile apps, etc. All these have opened up platforms for brands to reach their target audiences in a big way.
Trent Ltd is one of the country’s leading multi-category retail company with blue chip brands like Westside, Zara, Landmark and Star. The company posted better Q3FY19 results with total income growing 26% to Rs 665.89 crore as against Rs 525.66 crore for the corresponding quarter last fiscal. The company posted a 6.28% rise in standalone net profit at Rs 40.27 crore for the quarter ended December 2018 as against Rs 37.89 crore in the October-December quarter a year ago. Trent has the right element in place and should bolster its return ratios in the near future. Even though valuations are not cheap for stocks of companies in the retail sector, the company has moats in place to merit a buy rating at the current market price. The Trent stock at
Rs 360 is an excellent portfolio buy for a 30% price appreciation in the next one year.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.