Be In The Game

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A continuation of the kind of returns that one saw in the year 2009 is quite unlikely. In fact, ever since the Nifty touched 5,181 on October 20, 2009, it hasn’t really gone anywhere.

The Nifty has surpassed this mark in three different rallies, with the highest being 5,399, but each time the markets have been beaten back. We like three sectors – the gas producers, the pipeline companies and the healthcare providers. We like the gas sector because gas is finding numerous uses as feed stock and fuel. The real demand for gas is much more than what is considered today, because the demand from a centre where there is no pipeline is not considered as a valid demand.

I would look at buying companies with larger gas reserves than oil companies as, historically speaking, gas prices have been one by nine or ten of crude prices. Coming to the pipeline sector, the scope is enormous. We have just 30 cities and towns where we have piped gas. And even in those towns, the coverage is not full so that there are certain pockets without this facility. The PNGRB, the regulator for the sector, wants to take piped gas to 250 cities. Our neighbour across the Wagah Border has 1,000 towns and cities with these facilities. We are four times the size of Pakistan. So the scope for expansion is enormous.

There is also a lot of scope for trunk pipelines. Most of our gas is produced offshore and needs to be carried to the consumer centres, which makes the pipeline business a safe sector to invest in. In this space, our preference is for GSPL since it always seems to be in the right place at the right time. It generates more than Rs 700 crore in cash every year and has the capacity to lay a 900 km pipeline with internal accruals and debt. Traction should come in the stock after the regulator, PNGRB, is empowered. We also like the healthcare business. In our opinion, medical tourism is going to rise at a rapid pace. At present we have 0.9 hospital beds per capita. That compares favourably with the US where there are six beds per capita.

The local demand is also being fuelled by the health insurance business.The sector has a long way to go. Therefore, buy the leaders in the space at current rates. You will always find them expensive for the next few years. The immediate triggers will depend on the ability of the government to carry on the reforms initiated in the oil prices to their logical conclusion. Internationally, we should look for signals that the US and China are showing. My advice to the retail investors in the current market scenario would be to be a little cautious. This is not a runaway market. So while you may want to invest for the long term and accordingly pick your stocks, it may be worthwhile taking small profits that come your way in the short run as the markets could give you several opportunities. Take your ones and twos. Don’t wait to hit a six.