diwali sale

Diwali Sale: Accumulate these 2 Stocks To Earn A Generational Wealth

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The Russia-Ukraine war and the American recession have given investors a chance to buy fundamentally strong stocks at this Diwali sale. Make this Diwali a prosperous one by investing in the following 2 consistent compounders to get good returns over the long term.

Wipro

Overview of The IT Industry

Indian IT industry is going through the fear of recession. Despite good earnings, the stocks are correcting a lot. According to IBEF, the IT sector will contribute 10% of India’s GDP by 2025.

Why IT stocks should be part of your portfolio at this Diwali sale?

The majority of the revenues of IT companies come from the US and Europe. The Europe and US are facing continuous interest rate hikes which leads to the fear of recession.

Ramdeo Agarwal, the well-known investor, is damn sure about the bright future of IT companies. In short term, there might be a slowdown in the earnings of these companies but the long-term prospects of the IT sector is bullish.

So, don’t make the mistake to stay away from IT stocks just because of short-term noise in the market.  

Why Wipro has fallen so much?

Wipro has fallen by 49% in 1 year which is the highest compared to its peers like TCS, Infosys, and HCL. Wipro is facing a higher attrition rate of 23.8% which means for every 100 employees 23 are leaving the company.

To combat this issue, “We have decided to increase the frequency of promotion cycles for 70 percent of our colleagues in junior bands to a quarterly basis.”, says CEO Thierry Delaporte.

Due to this, the company has to pay a lot of money to retain its employees of the same skill set which is directly impacting their profit margins.

All of these problems are short term and it is expected that in a year or 2 we can see the good days for Wipro.

Fundamental analysis:

Ratios20182019202020212022
ROE17.47% 16.69%18.19% 22.06% 24.58%
ROCE20.61% 20.27% 21.78% 25.52% 27.65%
OPM%19% 20% 20% 24% 21%

Competitive Advantage:

  1. Strategic Partnership with Microsoft, Oracle, Aws, etc.
  2. Good Capital Allocation
  3. High-value promoters like Azim Premji are their biggest strength.

Dr. Lal Pathlab

The hospital industry is expected to grow at a good pace as government aims to increase its healthcare spending.

It is also present in the portfolio of Saurabh Mukherjea. The stock price has been corrected by more than 40%, the major reason is the tough competition faced by the company which is impacting the margins.

Overview of the business:

Dr. Lal Pathlab is engaged in the testing business of a number of diseases. The Pathlab market in India is of Rs 80,000 crores out of which 45000 crores is dominated by organized players like dr. lal path labs.

“Dr. Lal path lab is utilizing its assets (in this case it is their labs) so effectively that no one can fight with them head-to-head says fund manager Saurabh Mukherjea”. 

The company has 216 laboratories and 7000 pickup units. A decade back they were offering basic tests like blood and urine tests but today they provide 5000 various tests. Out of which 2000 are such tests which no other Pathlab offers.

Opportunities for Lal Path lab:

69% of its revenues come from the North region so there is a lot of scope for expansion in the south for the company. Hospitals in India don’t have sufficient infrastructure so they outsource the testing from labs like Dr. Lal.

The government has increased spending on healthcare more than ever so prominent players will get a direct advantage from it.

Fundamental Analysis

RATIOS 20182019202020212022
ROE 25.18% 23.53%23.66%25.93%26.5%
ROCE 37.65%34.34%32.6%34.82%32.11%
OPM% 25%24%26%28%27%

Competitive advantage:

  1. Efficient use of Assets
  2. Use of technology to improve efficiency.
  3. Clever & honest promoters are their biggest competitive advantage.

Conclusion:

We all know that to earn huge money we need to invest when the market is going up but real wealth in the stock market is created when everybody is negative about the stocks and sells them.

If you invest in the right stock at the right time then no one can stop you from creating wealth that lasts for generations. I wish you a happy and prosperous Diwali!

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