10,768.05-45.4
Stock Analysis, IPO, Mutual Funds, Bonds & More

It’s strong fundamentals that help companies survive a recession, and then thrive

Once govt lifts the lockdown, cos with strong cash positions are potential buyback candidates.

, ET Bureau|
Last Updated: Apr 08, 2020, 09.34 AM IST
0Comments
Shutterstock.com
Building-block-1---Shutter
Companies such as ITC, Maruti, Eicher, Bajaj Auto, ACC, Cummins, M&M, Castrol, Nalco, and Infosys have huge cash on their books.
Recessions usually lead to Darwinian conclusions — some survive them, while many don’t. But those that do have all the key attributes of the fittest — strong balance sheets and adequate cash reserves. And their owners might want to own more of themselves through buybacks.

Companies such as ITC, Maruti, Eicher, Bajaj Auto, ACC, Cummins, M&M, Castrol, Nalco, and Infosys have huge cash on their books, and they can allocate financial resources to different avenues for maximising profits and increasing efficiency once the economy begins to revive.

“Given the heightened uncertainty, we believe corporates will not be in a hurry to invest in capex in the foreseeable future,” said Gautam Duggad, head of research, Motilal Oswal Financial Services. “Assessing the price-valuation damage in Nifty, many companies are now trading at multi-year lows and valuations. Thus, the recent sharp correction in stock prices may provide an opportunity for a select few cash-rich companies to augment shareholder returns through dividends or buybacks.”

Buybacks in the near-term are ruled out as liquidity on the balance sheet will now be of paramount importance to run businesses in the short term due to the nation-wide lockdown and consequent collapse in revenues. Several big companies in the US and Europe have cancelled their buybacks due to the worsening environment after the outbreak Covid-19. But once the government lifts the lockdown, companies with strong cash positions are the potential buyback candidates, said analysts.

Stock snip 1

(What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

Also Read

European economies on course for unprecedented recession

European economies on course for unprecedented recessions

Australia heading for recession after economy contracts

How investors can survive the coming recession

Gold steady, firm dollar offsets recession support

UK facing significant recession, says Rishi Sunak

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service