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Fund managers increase exposure to companies likely to benefit from commodity upcycle


Fund managers at domestic mutual funds focusssed on traditional industries such as metals, energy and construction in February tracking the global drift in a shift in investment strategies to value picks. They bought shares of metal companies, which are expected to benefit from the upcycle in global commodities. Besides, the focus on dividend aspect of such companies provides stability to fund houses’ portfolio when rally in these stocks peak.

Here is the low-down on the picks by fund houses:
(NALCO)

CMP: Rs 58.5

Market Cap: Rs 10923 crore

Buyer: Kotak MF

Increasing aluminium prices, dividend yield of 8% (caps downside) and attractive valuations are a few important factors which have triggered high interest in the company’s stock. It is one of the major beneficiaries of the rising demand cycle in commodities in recent months. Besides this, the company’s recent buyback offer also strengthened the view that the company’s share price traded at a relatively attractive price in February. Also high cash on the company’s balance sheet has contributed to its attractiveness as a good commodity play. Given these factors, after a meagre growth estimate of 4% in its revenues for FY21, analysts estimate handsome growth of close to 15% in the company’s revenues for FY22.

CMP: Rs 109

Market Cap: Rs 105887 crore

Buyer: BNP Paribas MF

Strong quarterly financial performance, recovery in power demand, stable dividend paying record and high expectations of stability in financial performance are a few key reasons why managers have bought in shares of government-owned power company NTPC. Besides this, the company has been increasing its exposure to cleaner coal assets, and renewable means to generate power. The company is also increasing its focus on Environment, Social and Governance (ESG) parameters which improves its ratings and perception among investors. Given these factors, company’s Earnings per Share (EPS) is estimated to grow in the range of 12-34% in the next two fiscals.

SAIL

Bought by : HDFC MF

Market price: Rs 73

Market Capitalisation: Rs 30,150 crore

Fund managers have taken a recent liking to this PSU steel company as they believe the company is well positioned to capture its lost market share over the last decade as it is armed with an expanded and efficient capacity in the coming upcycle.

The company is on track to achieve capacity of 20mtpa, almost double its capacity in 2010, a measure which will boost realizations. As a part of its expansion it has added a cold rolling mill to convert semi-finished steel into high value yielding products like coated steel, CR steel, rails and structural where margins are higher. The improvement in its product mix will increase realisations. A PSU with more than 50% government share it enjoys special dispensation for the allotment of mines, a big positive and a useful lever for profitability when operational efficiency improves.

Tata Steel

Bought by: Canara Robeco MF

CMP: Rs 720

Market capitalization: Rs 82,488 crore

Analysts are betting big on Asia’s oldest integrated steel producer and the 9th largest steel producer globally in 2019. The recent move to curtail its ongoing capital expenditure, reduce debt, consolidate operations and rationalize subsidiaries under defined verticals has attracted investors to the stock despite a sharp run up. As the commodity cycle turns around, they believe Tata Steel is well positioned to be one of the big beneficiaries. The company has deleveraged sharply with net debt reduced by Rs.18,609 crores in first nine months of 2020-2021 and Rs 10,325 crores in 3QFY21.





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