Sectors and Stocks to buy

Stocks to buy, which we believe would benefit the most if the reelected Congress-led government succeeds in fulfilling its promises. But forget not, these are the long-term stocks to buy and hence are prone to the short-term fluctuations in stock markets!

• CEMENT SECTOR

The cement sector during FY 09 had already benefited from rural housing and government-funded infrastructure projects, which helped total despatches rise 8% y - o-y to 181 million tonnes. And if the re-elected UPA government takes fresh steps to expand infrastructure and rural projects, cement companies will be the direct beneficiaries.

RECOMMENDED STOCKS TO BUY FROM CEMENT SECTOR

ACC (CMP: Rs 729, P/E: 11)

For instance, Holcim-controlled ACC, which is a pan India player and one of the leading players in the sectors, would benefit from such an infrastructural push by the government. During CY 08, this company had grown its despatches by 4.9 % y-o-y to 20.86 million tonnes.

• BANKING SECTOR

The government's initiatives to infuse growth in rural infrastructure and to stabilise overall economy will have a trickle down effect on the banking sector. The government had earlier emphasised that public sector banks should have capital adequacy ratio of 12% to strengthen their operations.

RECOMMENDED STOCKS TO BUY FROM BANKING SECTOR

SBI (CMP: Rs 1731.7, P/E: 12.1)

Being the default banker to the government, State Bank of India (SBI) is expected to be a major beneficiary of the government's expansion plans. Also now that Congress led UPA government with other allies has a majority in the parliament, it will now be far easier for SBI to integrate its six associate banks with itself.

• AUTO SECTOR

Companies in the auto sector that focus on entry level market of two and four wheelers meant for cost conscious customers would see buoyant demand scenario once the rural income gets a boost due to government's thrust on rural growth.

RECOMMENDED STOCKS TO BUY FROM AUTO SECTOR

Hero Honda (CMP: Rs 1294.1, P/E: 20.2), Maruti Suzuki (CMP: Rs 960, P/E: 22.8)

While Hero Honda leads the pack in the economical two wheeler segemts, Maruti Suzuki leads the market for entry level cars. Both the companies are expected to see higher demand from rural markets in near future.

• TELECOM SECTOR

Mobile operators have been rapidly expanding their operations in rural India. The process will get a further boost given the government's focus on taking telecom services to the grass root level. UPA government has also promised in its manifesto to spread broadband services in the whole country in next three years. The sector can also expect further rationalisation in tariff rates and license fees, which may boost operational efficiencies.

RECOMMENDED STOCKS TO BUY FROM TELECOM SECTOR

Bharti Airtel (CMP: Rs 857.9, P/E: 21), Tata Comm (CMP: Rs 585.9, P/E: 61.3)

With over 60% share of rural penetration, Bharti is slated to be the biggest beneficiary of the government’s thrust on rural development. WiMax is a favoured technology to take broadband to rural areas. Tata Communications with its Wimax initiatives is likely to play a major role in this venture.

• POWER SECTOR

Power sector is likely to get a big boost due to government's programme to electrify every nook and corner of the country. A thrust on nuclear energy and subsequent agreement with the US Department of energy to secure future fuel needs, suppliers to this segment would benefit.

RECOMMENDED STOCKS TO BUY FROM POWER SECTOR

Rural Electrification Corpn (CMP: Rs 138.6, P/E: 10.6)Power Finance Corpn (CMP: Rs 200.3, P/E: 17)NTPC (CMP: Rs 216.4, P/E: 24)Areva T&D (CMP: Rs 317, P/E: 33.9)

• CAPITAL GOODS SECTOR

The sector so far has been benefited by strong demand from government's infrastructure projects . This is likely to continue given the UPA's thrust on its 'Bharat Nirman' project, which includes development of roads, water resources, electricity and other nationwide infrastructure work.

RECOMMENDED STOCKS TO BUY FROM CAPITAL GOODS SECTOR

L&T (CMP: Rs 1301.4, P/E: 22.1)Siemens (CMP: Rs 455.1, P/E: 16.1)Bhel (CMP: Rs 1982, P/E: 33.4)

All the three companies are leaders in their segments. Being India's leading engineering and infrastructure company, L&T will gain from any government plans to expand infrastructure. The other two will be benefited from the reforms in the power generation sector.

• PHARMA SECTOR

The sector will gain from government programme to aggressively expand healthcare facilities in the country. Moreover, improvement in infrastructure will also help in imporving the logistics and hence penetration of pharma companies in far flung areas.

RECOMMENDED STOCKS TO BUY FROM PHARMA SECTOR

Cipla (CMP: Rs 222.3, P/E: 22.5)Glaxosmithkline Pharma (CMP: Rs 1094.4, P/E: 15.5)

These companies being leaders in domestic market are likely to be benefited with any government expenditure in the healthcare space.

• FMCG SECTOR

The National Rural Employment Guarantee Scheme (NREGS) and Sixth Pay Commission have helped in boosting rural demand. This is likely to benefit the FMCG sector.

RECOMMENDED STOCKS TO BUY FROM FMCG SECTOR

Hindustan Unilever (CMP: Rs 231.9, P/E: 24.2)

Being India’s leading FMCG company, Hindustan Unilever will gain from any government expenditure.

• AGRICULTURE SECTOR

The government has promised to achieve food security by enacting a ‘Right to Food’ Act. This will need a significant increase in food-grain production, which in turn will raise the demand for fertilisers and pesticides. UPA also expects to increase the total arable land area under irrigation over next few years. All such initiatives bode well for companies that cater to these segments.

RECOMMENDED STOCKS TO BUY FROM AGRICULTURE SECTOR

Coromandal Fertilisers (CMP: Rs 169.5, P/E: 4.5)Rallis India (CMP: Rs 649.4, P/E: 10.9)Jain Irrigation (CMP: Rs 567, P/E: 33.4)

Agro-chemicals manufacturer Rallies and fertilisers maker Coromandal are likely to be beneficiaries of UPA's food for all initatives. Jain Irrigation is well positioned to be benefited from the government's plan to bring more farm areas under micro irrigation.

• STEEL SECTOR

The domestic steel demand seems to be intact and India is one of those few countries in the world which is expected to register a growth rate of 5-6 %. The UPA govt. initiatives in different rural development programs and higher spends on infrastructure would definitely boost the domestic steel demand.

RECOMMENDED STOCKS TO BUY FROM STEEL SECTOR

Sail (CMP: Rs 158.5, P/E: 9.3)

Sail is focused on domestic market where the demand is expected to remain stable. It has zero debt, no foreign operations, not expanded its capacity recently and is partially integrated. All these factors augur well for Sail during such challenging times.

• RETAIL SECTOR

The retail sector's wait for opening up of the FDI route for foreign retailers seems to be coming to an end. As the UPA government would no longer need the support of the Left front, which was opposing the change in the FDI policy and allowing foreign players into the domestic industry, retail sector seems to be poised for growth.

RECOMMENDED STOCKS TO BUY FROM RETAIL SECTOR

Pantaloon (CMP: Rs 300.4, P/E: 38.5)

Being the largest player, Pantaloon Retail would benefit with the change in the FDI policy. Not only would this increase the fund flow into the sector but also help the industry gain from the experience of some of the established international player.

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Indian Industries that will do well in recession

AS EVERY business sector is affected by present global crisis and everybody is talking of slow down in business, still in India there are few sectors which will grow in this adverse situation. Lets have a look.

• Food

No one can survive without basic food material like milk, vegetables and drinking water. Food processing companies will not be affected much and rather will earn profits by increasing the prices. These are the basic needs which we as a common man can not produce by our self.

According to Ministry of Food Processing Industry (MFPI), the food processing industry in India was seeing growth even as the world was facing economic recession. According to the minister, the industry is presently growing at 14 per cent against six to seven per cent growth in 2003–04.The Indian food market is estimated at over US$ 182 billion and accounts for about two thirds of the total Indian retail market.

Further, the retail food sector in India is likely to grow from around US$ 70 billion in 2008 to US$ 150 billion by 2025

• Railway

As the aviation sector has been affect much badly and resulting in sharp rise in the air ticket rates the frequent travellers will prefer railways to cut the cost of travelling and this will result in increased traffic in railways and long queues at railway booking counters. The freight traffic of Indian Railways has continued to grow in the last few months, albeit at slow pace, indicating only marginal impact of the global recession on the Indian economy.

The railways registered 13.87 per cent growth in revenue to Rs 57,863.90 crore in the first nine months ended December 31, 2008. While total earnings from freight increased by 14.53 per cent at Rs 39,085.22 crore during the period, passenger revenue earnings were up 11.81 per cent at Rs 16,242.44 crore. The railways have enhanced freight revenue by increasing its axle loading, improving customer services and adopting an innovative pricing strategy.

• PSU Banks

As seen in the private sector much of the job cuts due to global slowdown, its the public sector undertaking (PSU) banks which gained much confidence due to job safety and security. More and more people are likely to turn towards government institutions, particularly banks in the quest for safety and security.

A report "Opportunities in Indian Banking Sector", by market research company, RNCOS, forecasts that the Indian banking sector will grow at a healthy compound annual growth rate (CAGR) of around 23.3 per cent till 2011.

• Education

As education is considered as the basic necessity and in India it is seen as a long term investment by parents and with respect to the demand still there is a huge supply gap. The craze to study in foreign university among the Indian youth still alive which will prompt foreign education institute to target India provided vast young population willing to join.

We will see more and more foreign educational institutions coming up in India in recent coming years.Huge government as well as private investment is likely to flow into the Indian educational system. D E Shaw, a US$ 36 billion, global private equity firm is planning to invest around US$ 200 million in the Indian education sector.

• Telecom

People will not stop to communicate with each other due to global crises rather it has been seen that it will increase much particularly with mobile communication. With cheap cell phones available in the Indian market and cheaper call rates, the sector has become the necessity and primary need of everyday life.

Telecom sector, according to industry estimates, year 2008 started with a subscriber base of 228 million and will likely to end with a subscriber base of 332 million – a full century. The telecom industry expects to add at least another 90 million subscribers in 2009 despite of recession. The Indian telecommunications industry is one of the fastest growing in the world and India is projected to become the second largest telecom market globally by 2010.

• IT

Recent news shown that Indian IT sector will grow 30 to 40 per cent next year. And on the other side to survive in current slowdown, industries have to decrease the cost and for that they will resort to customised IT solutions which will further boost up the software solution demand.India is fast becoming a hot destination for outsourced e-publishing work.

As per a Confederation of Indian Industry (CII) report, the industry is growing at an annual rate of 35 per cent and India’s outsourcing opportunities in the value-added and core services such as copy editing, project management, indexing, media services and content deployment will help make the publishing BPO industry worth US$ 1.46 billion by 2010.

• Health care

India in case of health care facilities still lakes the adequate supply. In health care sector also there is huge gap between demand and supply at all the levels of society. Still there are so many urban areas were you could hardly find any multi specialty hospital. And in case of metros the market sentiments itself created a need of psychological consultation. Healthcare, which is a US$ 35 billion industry in India, is expected to reach over US$ 75 billion by 2012 and US$ 150 billion by 2017. The healthcare industry is interestingly poised as it strives to emerge as a global hub due to the distinct advantages it enjoys in clinical excellence and low costs.

• Luxury products

The high and affluent class of society will not be affected much by this global crises even if their worth is reduced significantly. They will not change their lifestyle and will not stop spending on luxurious goods. So luxurious product market will not be affected and in fact to maintain the lifestyle those affluent will spend more for it. Luxury car makers are pouring in to woo the nouveau riche (Audi, BMW are the most recent entrants).

• M&A & Marketing Consultants

As in the current business slow down survival will be the main focus, the marketing and management consultants will be called for to reduce the costs and to show the ways to survive and stay in market. Others may join hands to fight with this situation together will call for the Marketing & M&A consultants. In a booming market there are growth strategies and M&A opportunities to advise on.

When businesses are cutting back, consultancies will be right there to help clients decide where to wield the axe. According to Ministry of Commerce and Industry’s estimation, the current size of consulting industry in India is about Rs 10000 crores including exports and is expected to grow further at a CAGR of aproximately 25 per cent in next few years.

• Media and Entertainment

In current bad times, where people are losing jobs and getting enough time to watch TV, they will seek entertainment at home and hence advertising revenues will increase for the commercial channels. Also businesses like production of religious texts and religious materials, religious channels will do well. The TRP of religious channels will increase compare to the other entertaining/commercial channels.

According to a report published by the Federation of Indian Chambers of Commerce and Industry (FICCI), the Indian M&E industry is expected to grow at a compound annual growth rate (CAGR) of 18 per cent to reach US$ 23.81 billion by 2012. According to the PWC report, the television industry was worth US$ 5. 48 billion in 2007, recording a growth of 18 per cent over 2006. It is further likely to grow by 22 per cent over the next five years and be worth US$ 12. 34 billion by 2012.

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