If the past two weeks' average intra-day fall of over 500 points in the Sensex is any indicator, it's evident that investors are out in hordes to sell.
Investors are making a desperate attempt to book losses, even as they try to
save whatever is left of their investments. Sitting on cash appears to be the
safest option, but it may not be the smartest thing to do.
With the Sensex now in four digits and most of the stocks down to one-third of
their last year's value , investors with a long-term horizon can use the market
crash as an opportunity to accumulate blue-chip stocks.
Many good companies with rock-solid businesses, good cash flows and generous
dividend-paying policies have seen sharp falls in their valuations, which has
opened up a golden buying opportunity.
Even if the market falls further from here, the downside is likely to be
limited for these stocks. For instance, investors who bought Infosys
Technologies in the middle of the bear run in September '01, are still enjoying
positive returns of more than 300%, despite the recent fall.
ETIG takes a look at the profile of 10 scrips that a long-term investor can
start accumulating in the current slump. The stocks have been selected based on
their current valuations and relative historical earnings multiples.
We also factored in parameters such as dividend yield, dividend policy,
strength of the company's business, and most importantly, past record. We have
kept the traditional defensive stocks out of this list as these gain favour
during bearish phases, but their prices generally stagnate during bull runs.
ACC
In the last bear phase in the late 1990s, ACC lost nearly 50% of its market
capitalisation from its peak. In the current market turmoil, the stock is
already down by over 60% from its peak. So, with each fall, the downside is
getting limited. Besides, the stock has never been available so cheap. At its
current price-earnings (P/E) multiple of around 7.5, the stock is trading at
less than half its 15-year average P/E. And the icing on the cake is a 4%
dividend yield - another historic high.
Castrol India
The company is India's largest manufacturer of lubricants. Lubricants are
consumables and their demand is directly related to the number of vehicles on
the road and the level of manufacturing in the economy.
In the past five years, the number of vehicles on Indian roads has nearly
tripled, while manufacturing capacity across sectors is about to jump manifold.
This will ensure that the company will see a steady growth in revenues and
profits in the next few years. The market seems to have recognised this and the
stock has appreciated by 15% in the past 12 months. And despite this, its
dividend yield is at a high 5%.
Kesoram Industries
The company is set to emerge as one of India's leading tyre manufacturers. Tyre
demand is expected to grow in double digits, thanks to an explosion in the
number of trucks and commercial vehicles on the road.
This will provide the company with earnings stability at a time when margins in
cement are peaking out. We expect a sharp improvement in the tyre division's
profit margin, thanks to a fall in the prices of natural rubber and crude oil.
LIC Housing Finance
The company has stepped up its marketing efforts in the past year, which has
led to a 200- basis points increase in its market share to 7% by the end of
FY08. Housing demand is relatively inelastic to the economic downturn and we
expect the company to see a 20-25 % year-on-year growth in loan offtake in the
next few years.
Madras Cement
It is one of best-run cement companies in India with an unbroken record for
generating profits and paying dividends for over three decades now.
It used the boom in the cement market in the past few years to expand
aggressively and is likely to emerge as the largest player in South India. The
region is India's fastest growing cement market. The stock is currently trading
at over 50% discount to its lowest P/E in the last downturn in the late 1990s.
Petronet LNG
Petronet LNG is India's only LNG importer, which is doubling the capacity of
its terminal at Dahej to 10 million tonnes per annum (mpta) by December '08.
Currently, the company has firm contracts for import of 5 mtpa of LNG, which
will be scaled up to 7.5 mtpa next year. Apart from this, the company has been
sourcing spot LNG cargos to cater to the natural gas requirement in the
domestic market.
These Are For Keeps
WITH THIS expansion, the company will be able to generate additional revenues
through higher volumes. Over the next 2-3 years, the company will set up a
power plant at Dahej and another LNG terminal in Kochi.
SAIL
The steel giant is integrated backwards to a large extent and has good
operating margins. Considering the credit market crisis, the company's lower
debtequity ratio will help it to go ahead with its expansion plans. SAIL has a
greater focus on the domestic market, which is still better off than developed
markets, as far as the slowdown is concerned.
SKF India
India's largest manufacturer of bearings and seals is now aggressively
expanding into the industrial segment by launching control systems to derisk
its business from over-dependence on the automotive segment. The stock is
currently trading at around 75% discount to its 15-year average P/E. Its high
dividend yield of around 4% is another attraction.
Tata Chemicals
The company has emerged as one of the world's leading soda ash manufacturers.
Within India, it is a leading producer of phosphate fertilisers.
The fertiliser business, which generates nearly 45% of its consolidated
revenues, is set to get a boost from the recent changes in government policies,
which linked the subsidy payments to import parity prices.
The company is also debottlenecking its domestic plants and foraying into new
businesses such as biofuels and wholesaling of agri-products . These
initiatives will ensure its future profit growth.
Tata Steel
The oldest and fully integrated steel company in the country is also one of the
world's lowest-cost producers of the commodity.
In the last economic downturn, it was the only large player which did not
report losses and consistently paid dividends. Corus, its UK subsidiary, has
shown improved results in the past few quarters on rising synergy through
improvement in operations, distribution and finance controlling, among others.
WAY TO GO
While no one exactly knows where the BSE Sensex is actually headed, it is not a
bad idea to strike good bargains at sub-10 ,000 levels.
The current bearish phase provides a good chance to accumulate 'sought-after '
stocks. While large investors or high net worth individuals (HNIs) can look at
bigger accumulations, small investors can upgrade their portfolios by replacing
their penny stocks with premium ones.
http://economictimes.indiatimes.com/articleshow/msid-3616970,flstry-1.cms
Out of sight, out of mind
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