Finally, time to get greedy
Dipen Sheth October 15, 2008
The market’s cracking and not a minute too soon. For a few months now, we have been sitting patiently on cash in the belief that the economic facts at our disposal do not add up. The Sensex hit an intra-day low of 10,741 on 9 October, falling by an astonishing 50% from the intra-day high of 21,207 exactly nine months ago.
If you have to pick a proxy among banks, SBI becomes the automatic choice. I’d disagree. It might still be the largest bank around and has an incredible reach and deposit franchise, but what part of incremental accounts and deposits do PSU banks garner? And so, where are their borrow-lend spreads headed in the long term? Once the worst of perception fears (and FII fire sales) have played out for large private banks, I’ll go back to HDFC Bank, Axis Bank and, maybe, even ICICI Bank. The hidden gems are the Federal Bank and PFC .
In keeping with its defensive nature, the consumer goods & services sector has provided solid protection in the recent meltdown. Hindustan Unilever is up about 20% since early July and has surely been the best performing large-cap stock in this period. Yes, Indian demographic dividend is finally yielding strong visibility for consumer firms. I will look out for players with strong distribution reach, category domination and a good product launch track record. The candidates: Nestle, Hindustan Unilever, Glaxo Consumer and Colgate.
But this sector is known more for its lack of transparency and jargon than for clear chances to find great stocks. Sun Pharma, Dr. Reddy, Lupin, Glenmark , Jubilant and Divi’s are all stocks that will come up on our radar. Your guesses are as good as mine when it comes to cherry-picking from this obtuse and opaque lot. A potential longterm concept pick for readers to debate: Apollo Hospitals.
Sectors like textiles and chemicals will not figure easily in portfolios that we construct after such stressful times. Still, if you must, we’ll consider Bombay Rayon (an aggressive integrated garment exporter) from the textiles space, and Tata Chemicals (a relatively safe soda ash+fertiliser play).
Send in your ideas for our shopping list and we’ll put our cash reserves to good use.