If you take a walk down Dalal Street, you're likely to bump into one of two types of punters: those who are betting their chips on an economic revival six-to-eight months down the line, and are mopping up stock, or those taking to shares of companies that promise to hold their own despite the slowdown. In other words, they don't see a turnaround on the horizon.

Either ways, the verdict on The Street is clear: there's money to be made, in a range of sectors and companies. ''Although this time the rally is going to be different from those in the past, expect broader participation from many sectors,'' points out Dileep Madgavkar, CIO, Prudential ICICI MF.

One warning: in no way are we exhorting you to treat the companies we talk about as recommendations. If you don't feel up to burying yourself in research or don't have the time to monitor your stocks on a regular basis, then stop right here, and move over to the feature on mutual funds on Page 42. Let the fund managers manage your money.

If you've decided on going it alone, don't for heaven's sake unload your sackful of investible surplus on the nearest broker in your neighbourhood. Ensure that your portfolio is diversified across several avenues, including bonds, real estate, bank deposits, company deposits and, yes, equities. That will give you the flexibility to reallocate a part of your portfolio on an annual basis, something that has become imperative in a floating rate scenario.

Not For Everybody

Many of you are not going to like this, but if you don't have an investible surplus of Rs 4-5 lakh, you shouldn't be even thinking about equities. Not just that, if you happen to be sitting on that kind of money, says Milind Barve, Managing Director, HDFC Mutual Fund, only 10 per cent of it should go into equities-preferably in a diversified equity fund. A.K. Sridhar, General Manager (Department of Funds Management), UTI, agrees that this is a good time to enter the markets, but that's not all he has to say.

One needs courage to say this, but unless you have a Rs 10 lakh investible surplus along with a house, or unless you are born into riches, you shouldn't be putting money in equities. According to Sridhar, for every Rs 100 over the Rs 10 lakh surplus, Rs 40 should go into equities. And if you're a slicker who's sitting on a Rs 30 lakh stash, you could safely park up to 60 per cent in the stockmarkets.

So, for those with a penchant for research, time to monitor your stocks, and of course a budget to invest in equities, this sectoral analysis is for you.

"This time the rally will be different. Expect broader participation from many sectors" Dileep Madgavkar, CIO, Prudential ICICI MF

BANKING: The polarisation of the Indian banking sector, which began when private banks made an entry, is slowly fading. The spate of retirement schemes worked out by various public sector banks has made them leaner and meaner. Today, nationalised banks are in a much better position to leverage their retail deposit base and reach, and, thereby, compete effectively with the private banks, financial institutions (FIs) and the non-banking finance companies (NBFCs). Moreover, the softening of interest rates has meant that the huge portfolios of government securities held by the public sector banks have appreciated, providing a sound buffer to set-off bad debts. In fact, many of these banks have much lower non-performing assets than the FIs and NBFCs.

''As far as the NPAs and capital adequacy are concerned, the worst seems to be over for the banking sector. The ability to tap the retail markets will be important now,'' says Madgavkar. Any recovery in the domestic economy will boost credit demand and, consequently, yields of banks as they move out of government securities. Hence, banks make a very good play if you're expecting an economic turnaround.

Big daddy State Bank of India (SBI) is effectively a mirror for the Indian economy. ''The bank has undergone a major overhaul with a large VRS programme (21,000 employees last year) and entered key retail areas to drive growth,'' says Manish Chokani, Director, Enam Securities. The bank is pushing its credit cards aggressively, and has renewed its focus on home loans. The reality of SBI is better than its perception, the reverse of which is true for some highly valued private sector banks, according to Chokani. Trading at attractive valuations post-budget (in the Rs 230 range, at a forward p/e of 7.62), sbi is one stock institutional investors can't ignore in any rally.

Private banks, for their part, also have takers. ''We are positive on the banking sector as a whole, but prefer the private players as they are more aggressive,'' says Ravi Mehrotra, CIO, Pioneer ITI Mutual Fund. But they're also more expensive, with HDFC Bank quoting at over 25 times its 2003 earnings. There's one section of analysts, which fancies ICICI Bank to HDFC Bank since it is more aggressive on the retail front. And on the valuation front too, it appears more attractive (p/e of 18), although the icici-icici Bank merger takes the sheen away. A better bet would be ING Vysya, thanks to the ING connection. ''The bank has done a clean-up exercise and raised funds for expansion. The retail thrust coupled with falling interest rates will drive earnings,'' says B.P.Singh, Head of Research, SSKI Securities.

"We are positive on the banking sector as a whole, but prefer the private players" Ravi Mehrotra, CIO, Pioner ITI MF

PHARMACEUTICALS: The multinational stocks, as well as those of Indian companies, are in the limelight. For different reasons. The MNC bandwagon is attracting value investors whilst the Indian sector is the favourite of aggressive growth investors.

The case for investing in MNC pharma stocks is that they always had very strong balance sheet positions with near zero debt on their books. They have some of the best working capital management positions with their inventories and average debtors way below those of their Indian counterparts. This has given them very good return on investment and cash surplus on a (relatively) smaller balance sheet.

The Indian pharma pack has outperformed the market averages over the past two years and is still on the shopping list of most fund managers. The drivers are the opportunities in the US generics market and the product licensing possibilities from in-house research. We have already seen the benefits that can accrue when a big drug goes off patent in the US. Dr Reddy's got a 180-day exclusivity deal for its generic version of Prozac. This drug itself is expected to add more than Rs 250 crore in after tax profit to the company's bottomline in 2001-2002. To put matters in perspective, the previous year's net profit was Rs 151 crore. Though the profitability from the generic version will drop after the exclusivity period due to lower margins, it will still contribute its mite in the coming years.

Moreover, Dr Reddy's has a pipeline of generic versions of major drugs going off patent. To add to the generic opportunities, the Indian pharma majors are also working on new research on molecules and delivery systems, which they expect to license out to international pharma majors. Dr Reddy's is expecting a contribution of Rs 33 crore from licensing revenue in the current year. These drug trials are in the initial phases and the licensing fees will increase as they hit commercial runs. Ranbaxy also has many drug launches and new research lined up for the coming years. It is this possibility of high growth that has the market enthusiastic on Indian pharma stocks.

"Indian IT firms will offer cost-reduction opportunities to overseas clients via outsourcing" John Band, ASK-Raymond James

FAST MOVING CONSUMER GOODS (FMCG): Single-digit growth has kept investors away, but what if there's a revival around the corner? That's the big question analysts are wrestling with currently. Clearly, if the economy looks up, the low level of consumption in India and the rapid expansion of purchasing power will ensure that this industry grows at a rapid pace in the years to come. Meanwhile, the strong balance sheets of these companies give comfort to the discerning investor.

For an investor looking to invest for the next five to 10 years, the FMCG industry is the best bet. Hindustan Lever remains a proxy for the Indian FMCG sector and will be the biggest beneficiary of a revival in demand. The company has a strong presence in all segments and has a gameplan to enter new areas, especially in the foods segment. The company has drawn up a restructuring initiative to focus on 30 core brands and to exit non-core and low-margin businesses. The benefits will be in the form of better management focus and lower ad-to-sales ratio due to focus on a smaller basket of brands. The only investment concern is that the foods business is yet to start contributing to the bottomline and the aggressive stance taken by Amul is likely to create a very competitive environment.

Though trading at a steep 30-times earnings, Lever has historically quoted at a premium to the market. The other MNC companies like Nestlé and Britannia are also worth a dekko. Nestlé is dependent on the urban and affluent sections of the market. This segment has shown the best increases in purchasing power and a propensity to spend. The company has strong drivers in the form of the Nestlé, Nescafe and Maggi brands. It is the market leader in the infant nutrition and powdered and condensed milk markets and the number two player in the chocolate market. The company has also committed to increase its stake through the creeping acquisition route. The only concern is that its new initiatives in the dairy and bottled water business have faltered. But the stock trades at attractive valuations and deserves to be a part of any portfolio.

Britannia is one of the largest players in the biscuit segment with a 36 per cent marketshare. The company has also launched snack foods and dairy products. Though the snack food foray has created a niche for itself, the dairy business has been floundering. The management has now decided to transfer the dairy business to a joint venture (49 per cent) with New Zealand Dairy Board, which will result in a net cash inflow for Britannia.

Among the Indian players, Marico is attractive due to low valuations. It trades at seven-to-eight times earnings perhaps because of its dependence on a single brand (Parachute) and the commodity nature of its portfolio.

"For every Rs 100 over a Rs 10 lakh surplus amount, Rs 40 should go into equities" A.K. Sridhar,, GM (Fund Mgmt.), UTI

PUBLIC SECTOR UNDERTAKINGS (PSUS): The pariahs of the stockmarket have suddenly emerged darlings. Many have already recorded substantial gains, but prudent investors can still benefit. To pick PSU winners, focus on two primary aspects: first, the probability of divestment within a reasonable time period; and second, the discount at which the stock is quoting relative to the expected divestment price. Many PSUs may be of a strategic nature to the government or may have strong unions, which will push these companies to the bottom of the divestment list. Also, when a PSU stock has had a good run and you are unsure about the divestment price, it is better to be safe than sorry.

The best bets are the impending divestment candidates: HPCL, BPCL and IPCL. For the oil companies divestment is expected to take place over the next six-to-eight months and will be at significant premiums to the current price. IPCL is slated to be on the block soon and is also expected to fetch a hefty premium.

INFORMATION TECHNOLOGY: Yesterday's top favourite may not be red hot, but it's still a favourite. Despite the shrinkage of volumes-courtesy slashes in tech spend worldwide-the software services sector still grew at 30 per cent in 2001-02. ''There's a long-term story here,'' says John Band, Chief Executive Officer, Ask-Raymond James. ''For the next five years, Indian it companies will have an edge by providing sustainable cost-reduction opportunities for overseas clients via outsourcing.'' With the US economy showing distinct signs of recovery-not the telecom sector, though-Indian it companies can look forward to a pipeline of projects that had been put on the backburner during the slowdown.

However, the days when every stock with a 'software' or 'infotech' suffix soared northwards are over. If you have the money, you should be going for the top-three it stocks, including Infosys and Satyam, which are attractively priced now. Wipro is expensive, trading at close to 40 times 2003 earnings, and analysts point out that it is today quoting at a significantly high premium to Infosys. HCL Technologies appears cheap, at 12 times forward earnings projections, but the danger is that it has a huge exposure to the telecom sector.

There's little joy in the second rung, although a couple of names appear attractive. Digital Globalsoft (in the Rs 550 range) hasn't been hit as hard by the US slowdown since its parent, Compaq has been feeding it with good business. At the same time, Digital has managed to increase its non-Compaq revenues to 15 per cent of the total, and the company is currently developing domain expertise in various verticals to grow its non-Compaq client portfolio.

Another good play in the second rung is Polaris Software, thanks to its focus on banking and financial services, in which it has bagged some big-ticket clients such as AIG and Commerzbank.

AUTO: Valuations in the truck and car sectors are hopelessly depressed, and if the economic upturn is to happen six-to-eight months down the line, now would be a good time to buy into such companies. What's more, budget proposals do have some sops for this sector, what with peak customs duties on spare parts down, and cuts in prices of petrol and diesel. That's why Tata Engineering, Ashok Leyland, and Mahindra & Mahindra appear attractive plays at their current prices.

Tata Engineering has been one of the biggest destroyers of shareholder value over the past few years, but the upside could well begin now. The Indica has been gaining marketshare for several months (in January, sales were up by 148 per cent), and profits from the car project could be just round the corner. The danger from the shareholder point of view could be that the returns from the Indica could be pumped into the company's second car model and that could impact profitability once again.

Two-wheelers have been the silver lining in the recession-ravaged Indian industry, with Hero Honda and Bajaj Auto registering up to triple-digit growth in some months last year. And it appears sustainable too for another year at least. Band says that as long as the public transport systems remains as dreadful as it is, mobike sales will keeping growing. The choices for investment are clearly between leader Hero Honda and No. 2 Bajaj Auto. Rahul Bajaj's company, however, appears attractive not just from the valuation point of view (18 times 2003 earnings against Hero Honda's p/e of 30) but also because of broader product range and its ability to develop technology indigenously.