Friday 16 October 2009

Contrarian Pick for Samvat 2066

Contrarian Pick for Samvat 2066

Many friends have asked me for "A good stock to pick for the next one year". While I'm not normally comfortable giving recommendations, Diwali is an occasion when I like people to be happy.

Hence, here goes my suggestion for the next one year:

  • Favourite Sector - Telecom
  • Top Pick in the sector - Reliance Communication
  • Rationale:
    • Lots of negative news, resulting in surprisingly low share prices:
      • Most other sectors have run up quite a bit in the post-March 2009 rally
      • Scrips from the telecom sector has actually fallen in the same period
      • Telecom stocks have taken a beating even more in the last couple of months
      • Especially Reliance Communication has been involved in a lot of bad stories - Just do a Google search and you'll hear enough of them
    • Long-term story of the sector is intact
      • Indians love to talk
      • Current levels of penetration is very low vis-a-vis developed countries
      • The business is an annuity business - Once a customer is acquired, he stays with you unless there are strong negative reasons
      • Value added services like mobile banking, DTH TV, etc. are likely to gather steam tremendously in the months to come
      • Top quality management in the sector's leading players, including Reliance Communication - fully competent to face challenges
    • Underownership is likely to change in the coming months
    • Likely corporate action with lots of M & A
    • Likely re-rating of the sector with 3G introduction, popularisation of value added services, etc.

Given all the above factors, most shares in the telecom sector are likely to outperform the major indices in the next one year. My vote goes to Reliance Communication, which is heavily oversold at current levels.

Watch out for the same in the next several months.

Disclaimer: My family members (including me) hold a few shares of both Bharti and Reliance Communication.

Do enjoy a great Diwali, and a safe one!

Happy investing. May your wealth grow at a safe and sustainable pace.

Regards,

N


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