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Ventura Wealth Clients
4 min Read
NiftyNext 50

Supply chain disruptions, quantitative easing and more recently, the Ukraine-Russia war have been some of the leading factors that have been fuelling inflation.

And this rising price scenario, which is unleashing rising interest rates, seems here to stay. At least until emerging trade blocks start functioning smoothly and demand-supply mismatches get ironed out.

All this can play havoc with domestic companies, stock prices and, as a result, your portfolio.

So, in such a scenario what should you do?

Well, instead of waiting for the macroeconomic landscape to look better again, it would be intelligent to focus on sectors and themes that are likely to deal with inflationary pressures and rising interest rates effectively, and emerge stronger.

Under such circumstances we believe that companies with lean and clean balance sheets are likely to outperform.

Three types of companies are likely to do well under an inflationary scenario:

  • Companies with deleveraged balance sheets
  • If not already deleveraged, companies that are showing a clear and sustained trend of debt reduction
  • Companies that have just come out of a capex cycle and are ready to reap the benefits of capacity additions

Now here’s a glitch.

Unless you track stock markets and the top 500 companies regularly, it might be difficult to spot such companies individually.

But that’s where we come in; we’re here to help investors pick stocks that show promise under an inflationary scenario.

Our research team conducted a top-down study of listed Indian stocks and compared them with the global benchmarks on three parameters—leverage, earnings and return on invested capital  (RoIC).

Directions to interpret our findings

 Net-Debt-to-EBITDA: This ratio measures a firm’s cash-adjusted debt position with respect to its Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA). Hence, the lower, the better.

Net-Debt-to-Equity: This tells you how much a company has borrowed on a net basis vis-a-vis its own capital. Here too, the lower the ratio is, the better it is for the company.

RoIC: Unless a company is generating attractive returns on its invested capital, it will seldom be treated as a ‘compounding machine’. Thus, a higher RoIC is preferable.

And here’s the key takeaway

We’ve found that the NiftyNext50 index offers stock watchers the best set of stocks to invest in. Our optimism stems from the fact that in comparison to Nifty1000 stocks and global indices, the reduction in leverage and improving quality of earnings give the NiftyNext50 an edge.

Now we’re inviting you to join us in the hunt for the NiftyNext50 Jewel

Tell us, based on the three parameters discussed in this article, which company from the NiftyNext50 index is your top conviction. Send your responses to research@ventura1.com and in the series of articles that follow in this campaign, we’ll share our top picks along with the rationale.

If your pick matches one of ours, we’ll give you a shout out on our blog and social media handles.

It’s a challenge; join us in the hunt for Ventura’s NiftyNext50 Jewel – the stock that will outperform in the current economic environment!

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The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities. If you follow any research recommendations made by our fundamental or technical experts, you should also read associated risk factors and disclaimers.

We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company.

We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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