For a retail equity investor with limited money to spare, the portfolio should be a mix of stalwarts as well as hidden gems. While buying stalwarts at decent valuations always make sense, hidden gems can be identified when the whole industry is surrounded by gloom and doom. If the fundamentals are positive, you will find some big winners. This happened the last time when global oil prices nosedived and lately the Greek fiasco which has thrown many potential multi baggers in the fray for value investors to accumulate. Although it is difficult to choose and identify, equity investors should understand that quality will always be remembered after the price is forgotten.
We, in our column a few months ago, had recommended the Care Ratings stock to investors looking at companies with strong fundamentals, at Rs 1,350. Even though the stock has appreciated by only 10% in the last six months to the current Rs 1,450, it is still a solid buy and hence our repeat coverage. The company is the second largest rating company in the country after Crisil, with a market cap of Rs 4,200 crore. The initial stock offering had debuted in 2012 in the bourses at a price of Rs 750 per equity share.
For lay investors to understand what the company does — Care Ratings is in the business of analysing and giving financial ratings to companies based on their financial health. Apart from that it rates debt and bond instruments floated by various institutions. The shareholding pattern of the company consists of marquee names among large financial sector companies and institutions: As per the last data available, Canara Bank holds 11.95% , Idbi Bank 16.62%, SBI 5.19%, Franklin Templeton Investments 4.25%, Tata Steel 1.22% and UTI 1.54% among many others, of Crisil’s shares. With the Indian financial markets coming of age and newer instruments being introduced, Care Rating will also reap the benefit of the increase in government spending and hence demand in debt rating. Considering its strong fundamentals, the huge cash in its books, a good dividend payout ratio and high profit margins, the company is on a solid footing. Care Ratings stock should be bought by medium term portfolio investors for a target price of Rs 2,030 in a 12-15-month time horizon. The outcome of the Greek referendum was on the minds of every equity trader, fund manager and investor, but the equity benchmark outperformed global peers, with the Sensex ending the week above the 28,000 level and thus gaining 146 points. The broader markets were positive on the hope of less of an impact of the Greek situation and with foreign brokerages setting new and higher targets for the Nifty in the months to come. The next week seems to be in favour of the bulls, with the indices expected to remain in the positive territory but with bouts of volatility.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.