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Since
having scaled the old record of 6,150, the Sensex has entered a
phase of extreme volatility-with swings of some 200 points within
a single trading day. In fact, after a continuous eight-month rise,
the Sensex shed 143 points (or 2.4 per cent) in January. Nilesh
Shah, Senior Vice President & Head, Portfolio Management, Kotak
Securities, expects the current correction to "end by February"
and the index to "get into a consolidation phase in March".
The experts seem to know their way around all
the twists and turns, not to mention the corporate results, budget
numbers, P-Notes confusion and election intrigues. "As the
Sensex is quoting now at around 14 times its expected EPS of Rs
410 (for 2004-05)," calculates Raamdeo Agrawal, Joint MD, Motilal
Oswal Securities, "the market can be termed 'fairly priced'
now."
But what about you, the retail investor? With
almost every stock you feel safe with quoting above the valuations
you feel comfortable going by, the risks are too high for you to
bear without losing sleep. Is there anything left that you could
safely add to your portfolio?
Surely, there must be some stocks worth picking
up. On a long view, yes there are, says Rajeev Thakkar, Head, Research,
Parag Parikh Financial Advisory Services. "Investors getting
in now should do so with clear long term (two-three years) view,"
he says, "and should also be able to withstand notional losses
in the middle."
Are you game? Okay, here goes. First of all,
remember that since stock prices already account for 2003-04's earnings,
all your picks should be bets on faster growth next year. Second,
your picks must involve gains from themes that the wider market
may not have priced in. And third, they must still be undervalued.
On this criteria set, here are six stocks for your consideration.
Aventis Pharma: After lagging Indian
pharma rivals for years, this MNC is back in the groove. All the
market seems to be waiting for is confirmation of its return to
form-as judged by continued profit growth. Global pharma outsourcing
is a trend that could go in its favour. Meanwhile, sales should
accelerate after its Goa plant commences exports of Daonil to various
other subsidiaries. The 2005 product patent regime will probably
help too. "The parent has enough product patents," says
Thakkar, "and will be happy to launch them in India after this."
BHEL: Among the government's Navratnas,
an under-appreciated tag. Unlike the monopoly PSUs, this company
has always been exposed to international competition. And it hasn't
been idle. "It is sitting on a huge order book position of
around Rs 23,000 crore now," says Dilip Bhat, Head of Research
at Prabhudas Leeladhar. And the orders are growing. Deven Choksey,
Managing Director at KRC Research, sees BHEL gaining big from power
sector reforms. Yet, it quotes at only around 12 times its projected
2004-05 earnings.
Hero Honda: A beneficiary of the two-wheeler
boom, with an ever-strengthening semi-urban/rural thrust. The last
quarter's results have been impressive. "The growth is continuing
in the current quarter as well," says Bhat. This company hasn't
swerved off its secular growth trend down the years, but still remains
cheaply available. "With the expected EPS of 42, and a growth
of 17-18 per cent, it is at a p/e of only 11," adds Bhat.
Indian Hotels: A beneficiary of the
revival in travel and tourism. "Its occupancy rates, especially
in places like Bangalore, are very high," says Agrawal. Average
occupancy rates have reached 72 per cent in the last quarter, up
from 67 per cent in the same period the previous year. Though the
buoyancy has already taken the P/E ratio to 28 times its expected
2004-05 earnings, its lower profit base and the sector's oncoming
boom justifies the current price.
Siemens: A company that is finally getting
back into good shape. After the tough times of the late 1990s, Siemens
has managed a massive restructuring exercise (the workforce has
been slashed by around 25 per cent since 1997 and debt reduced to
nothing) that spells a leaner, meaner machine. And one that's ready
to make the most of the outsourcing story in manufacturing. "Siemens
India is becoming a global outsourcing base for its parent for X-ray
machines," says Shah. Further, its fully-owned software venture,
SISL, is also doing well.
SBI: Will do well in direct response
to the industrial recovery that has been spied on the horizon. Moreover,
India's largest bank has made dramatic strides in retail banking,
and got its computerisation processes in good order. Yet, SBI quotes
at a P/E of six, which is shockingly low even after taking the Interim
Budget's possible ill effects on the state-run banking system into
account. "If one considers the consolidated accounts (that
is, with the subsidiaries), its P/E is just five," says Nandan
Chakraborty, Head of Research, Enam Securities. Investor perception
of this huge state-run operation has been weak. If you sense a possible
reversal here, dare this stock.
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