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Waiting for the right moment? Here is the big investment idea from S Naren

NEW DELHI: After a multi-year rally in stock markets, when valuations are at a record high, most investors are looking left and right to find that one big idea that will help them create wealth. S Naren, Chief Investment Officer of ICICI Prudential Mutual Fund, has a suggestion: Put money in good dividend yielding stocks.

“[Invest in] good dividend paying companies which are not leveraged at this point of time or any mutual fund scheme which focuses on having a high dividend yield stocks of stable companies. I think that is the best investment at this point of the time,” Naren said, speaking at a conference organised by Morningstar on Tuesday.

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. Among the top companies in India, some of the top dividend paying companies are Indiabulls Housing Finance, IDFC, NLC India, HUDCO, P&> Health, TV Today, Balmer Lawrie, Oil India, DB Corp and PTC India.

Sectoral bets
Naren also said it is time to bet on sectors that have been depressed for over a decade and not on those that have already been rallying since the 2008 financial crisis. He cited the example of US markets that started a rally in 2012 after a lull of 12 years.

“Today we have multiple sectors that have given no returns for 12 years, whether it is metals, power, oil, construction or telecom. So, forget growth or value, they are actually very attractive because you are going to get compounding benefits of the zero returns at some point of time in the next 5-10 years,” said Naren.

He scoffed at the attitude of markets that seems to believe consumer durables, auto or airlines will grow but there will be no requirement for metals and oil for them.

Power and metal stocks have given poor returns, despite a good growth in demand for them. Moreover, these sectors have also been consolidating in the meantime with only a handful of the companies remaining.

“Consequently, the quantum of profit that was going to accrue to a wide number of players is accruing to a narrow number of players. It is not a growth versus value divide, but divide in terms of sectors that are going to have a lot of opportunities,” said Naren.

“We may see re-rating of [these stocks] commencing at this point of time. We could have a multi-year re-rating of stocks in these sectors,” he added.

Bitcoin vs gold
Naren also doesn’t seem to be a big fan of bitcoin as he said it is good the virtual currency is virtually banned in India as it has kept Indian investors away from a “super fashionable” tool. He also doubted if it was a better time to create a portfolio in gold as prices have surged. But, he said, it is definitely better to buy yellow metal than bitcoin.

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