Since April 2020, after the March crash, the markets have rallied spectacularly. A number of reasons are being given for this fantastic rise in the markets: a liquidity rush to fight the pandemic, a receding pandemic, an economic rebound, good profit numbers of listed companies, etc.
So far so good. However, for the serious stock investor, perhaps the biggest challenge is where to invest in a bull run. With stocks and their valuations growing wings, your best investment ideas seem to be out of reach.
In this series of articles, we bring to you stocks that have given better returns than the Sensex over the last one year but are still available at a discount to their historical valuations.
In order to arrive at these stocks, we applied the following filters:
- Market cap more than Rs 1,000 cr
- EPS growth of more than 15% pa over the last five years
- Current and five-year average ROE & ROCE more than 15% (for finance companies, only ROE)
- Positive cash flows over the last five years (not applicable for finance companies)
- Trading at a discount or a premium of less than 10% from 5Y median P/E (P/B for finance companies)
From the list of stocks that we so obtained, here is one.
UTI AMC: Sky is the limit
UTI AMC is one of the largest asset management companies (AMC) in India with total assets under management (AUM) of Rs 12.62 lakh crore as on September 30, 2021. Also, it is the eighth largest AMC in the mutual fund segment, with an average AUM (AAUM) of Rs 2.09 lakh crore in Q2 FY2022. Apart from managing the mutual fund schemes of UTI Mutual Fund, the company provides portfolio management services (PMS) to institutional clients and high net-worth individuals (HNIs) and manages retirement funds, offshore funds and alternative investment funds.
Its total AUM grew by 21 per cent to Rs 12.62 lakh crore in September 2021 from Rs 10.43 lakh crore in September 2020. Its quarterly average AUM (QAAUM) of mutual funds grew by 34.7 per cent YoY in September 2021 and its AUM of systematic investment plan (SIP) increased by 55.4 per cent YoY to Rs 17,389 crore. These impressive results were achieved because of the company's ability to take advantage of the growing interest of investors in mutual funds during the pandemic. Its sales-engagement strategy of increasing the number of SIP-selling mutual fund distributors, coupled with its share in the funds sold by distributors, delivered excellent results.
Given the low penetration of mutual funds in India (16 per cent of GDP in FY21 as compared to the world average of 75 per cent) and anticipated AUM growth between 11-13 per cent CAGR in the next five years (as per CRISIL), the company is poised to benefit from many structural tailwinds. Owing to its wide and diversified distribution network, the company is likely to capitalise on the growth from cities beyond the top 30.
Disclaimer: The stock discussed above is not our recommendation. Do your own due diligence before investing. If you are interested in our recommendations, please visit www.valueresearchstocks.com
Check out our other stories in the series: