Run against the herd

AUTOMOBILES: With no signs of sales slowing down, the Indian automobile industry gives some very good opportunities for investment. As t...

If you lost out on the bull run of 2003 and were keen to invest in the beginning of 2004, the crash of May offers you a chance to do some stock picking for long term investment. But here is a caveat: Some of the well-known financial pundits we spoke to refused to speculate on the way the individual scrips will behave in future. So invest with utmost caution.

The three sectors that bucked the trend and still offer a lower correlation with the political decisions as compared to other sectors:

PHARMA: Even when the entire market was crashing and lost almost 18 per cent of market cap, the Indian pharmaceutical sector8217;s market cap dropped just 8.21 per cent since the elections were announced. Dr Reddy8217;s Lab, Ranbaxy, Glaxo and Novartis are some of the good pharma companies which have withstood the massive notional loss suffered by investors. Ranbaxy at Rs 1,008 still a good long term buy, so is Dr Reddy8217;s at Rs 808. 8220;The results in the fourth quarter of pharmaceutical companies have been mixed. I think an investor should carefully choose companies to invest considering how they will react to global markets,8221; says Shashi Krishnan, CEO of Cholamandalam Mutual Fund.

INFORMATION TECHNOLOGY: The IT sector, that lost just 6 per cent of its market cap over the period, has managed to save itself from the mayhem which followed the elections results and the disappointment over the CMP. While the usual blue chips like Infosys and Wipro are as steady as always, look at Patni Computers that is now trading at Rs 259 after crashing below its offer price of Rs 225 just a few weeks ago. 8220;Due to the volatility in the market I think the best way for a small investors to enter the market is through a mutual fund,8221; says Rajat Jain CIO of IDBI Principal Mutual Fund. 8220;Having said that, I see a 20 per cent growth in profit earnings of the IT sector,8221; he adds.

AUTOMOBILES: With no signs of sales slowing down, the Indian automobile industry gives some very good opportunities for investment. As the passenger car segment has witnessed an unprecedented sales growth thanks to cheap loans, choice of models and aggressive marketing, the industry is set to witness a boom even in the current year.

Maruti, Tata Motors, and Hero Honda will continue to perform on the sales front. 8220;The demand for the automobiles will continue to grow in the coming months,8221; says Shashi Krishnan, CEO of Cholamandalam Mutual Fund. 8220;We expect the profit earning growth at 15-20 per cent. We have noticed that if the country8217;s GDP grows, the automobile sector also grows along with it,8221; he says.

Banks and PSUs are the two sectors that were the worst hit by the Left8217;s agenda. But even here there may be individual stocks that may do well. Look for dividend yield as a parameter to evaluate these stocks:

Story continues below this ad

		Funds lose less than the market

			Mutual fund investing is supposed to iron out the big jumps, both up and down, in the market movements. A 10 per cent fall in the market index should translate into a less than 10 per cent fall in a fund. This happens due to the fund being usually more diversified than the market index and the skill of the fund manager to manage funds efficiently. But is there evidence that investing in funds is really a lower risk strategy as is made out to be? We looked at two dates over which the Sensex fell 20 per cent in May. Next we looked at the NAVs of four top diversified equity funds and looked at the fall in their NAVs over the same period. Franklin Blue Chip fell 11 per cent, HDFC Growth Fund went down by 15 per cent, Prudential ICICI Growth lost 17 per cent and Kotak Global lost just 10 per cent over the period. Funds, it seems, work. But remember, the reverse is equally true and funds may not appreciate as much as the index when markets go up.

BANKS: The Indian banking industry has lost almost one quarter of its market cap over the month of May. But do not write off this sector just yet for there may be individual companies that buck the trend, specially now that the valuations are down. Among those reversing the trend are, Canara Bank, that shot up from Rs 113.5 on June 1, 2004 to Rs 134.15 on June 8, 2004. Similarly, thanks to its bonus issue, Federal Bank increased from Rs 311.65 to Rs 358.75 over the same period. Most of the major banks like Canara Bank, Federal Bank, ICICI Bank, UTI Bank, Union Bank of India, Vijaya Bank and Indian Overseas Bank are the big gainers since the CMP was announced. 8220;We maintain our positive view on banking and PSU oil companies stocks offering dividend yields of 6 per cent,8221; says a research analyst with Motilal Oswal.

PUBLIC SECTOR COMPANIES: Just two weeks ago public sector companies were facing the investors8217; ire for the new government8217;s announcement that the profitable PSUs will not be privatised. Some of the companies like ONGC lost market cap of almost Rs 30,000 crore within three weeks of elections. There were no takers for cash rich and high profit making companies like HPCL and BPCL. Oil refiner Hindustan Petroleum lost more than almost a quarter of its price value. But these companies are now worth a look due to their low valuations. 8220;I think they are very attractive at the current valuations,8221; says K Vijayan, Chief Executive Officer CEO of JM Mutual Fund. 8220;Just calculate the dividend yield of all these companies and you can see how attractive these shares are at this valuations. Investors have not lost after all,8221; adds Vijayan.

As a word of caution, approach stocks directly if you have the knowledge, if not, use the mutual fund route see box to build growth that stocks give to your portfolio.