After the massacre of tech stocks just before Christmas, what does the New Year hold for the stock markets? To find out, myiris.com spoke to several fund managers, stock analysts, equity researchers and market pros to identify the sectors that are most likely to perform well in 2001. We also asked them to share their best stock ideas for investment during the year. Broadly, this is what they said:
Tech may be battered, but there's no better growth story on the horizon. Our expert panel, however, prefers a defensive posture and says that one has to be selective in picking tech stocks. No scrip comes anywhere close to Infosys as the best in this sector.
The old economy is making a comeback; of the 69 stocks picked by 15 professionals polled by myiris.com, 26 are from the old economy.
Though the pros have their favourite sectors, they are choosy about the companies they pick. Everyone agreed that pharma was a growth sector; but just four pharma companies made it to our shortlist. The two biggies - Glaxo and Ranbaxy - were not on anyone's list.
Fast moving consumer goods (FMCG) stocks appear to have lost their lustre. The biggest FMCG company of them all - Hindustan Lever - did not figure on anyone's list.
So which stocks should you be putting your money on in 2001? If you were to go by the myiris.com jury, their top pick is still Infosys Technologies, with nine of the 15 people polled voting for it. A tenth member, while not naming Infosys as being among his best bets, said that he still expected this stock to post at least 50-60 per cent returns in 2001.
The next highest picks were ITC (four backers), Pfizer, Cipla and Larsen & Toubro (who got three backers each). The main reasons cited for picking these shares were that they all had good management, and were relatively undervalued by the market.
At the third rung (with at least two stock-pickers pitching for them) were companies like NIIT, HCL Technologies, Wipro and Mukta Arts in the New Economy group, and Tisco, Reliance, ACC and Bhel in the Old Economy.
The companies that received at least one vote of confidence each from our group were the following:
Software and New Economy: SSI, Satyam Computers, Digital Equipment, Sterlite Optical, VisualSoft, Mascot Systems, Mro-Tek, Hughes Software and Creative Eye.
FMCG and pharma: Marico, Nestle, Britannia, Novartis, SmithKline Beecham Pharma, SmithKline Beecham Consumer Products.
Old Economy: Grasim, ABB, Bata, HindLever Chemicals, Hero Honda, UTI Bank, Asian Paints, Raymonds, Pidilite Industries, Birla 3M, Hindustan Construction, Kotak Mahindra, Thermax, Bharat Earth Movers Ltd, and IPCL.
After the roller-coaster ride in 2000 - the euphoria followed by a near-bust in tech stocks - the stock-pickers obviously want to be cautious in 2001. The unstated theme coming through is that only value stocks must be picked, and even in tech, one must play safe. This explains the choice of Infosys by most participants, as also the low P/E stocks chosen from the Old Economy sector.
First Global director Devina Mehra
On the sectors that will perform in 2001:
Can't say which stocks are going to do well because it all depends on market timing. But three sectors - pharma, cement and selective technology stocks - look okay. But I am not positive on the overall outlook of the market.
On the stock picks:
The top 5 stocks in the next calendar year could be NIIT, Digital Equipment (India), Cipla, Grasim and ACC. Next year they will be at better levels, so buy in January.
Motilal Oswal Securities Ltd vice-president (Institutional) Nilesh Jain
On the sectors that will perform in 2001:
Infotech, pharma, and cement would be my top three sectors on account of the growth potential.
On the stock picks:
Infosys, because the current (downward) movement on the IT front in the market is temporary. There is bound to be a consolidation towards the larger players in the IT sector and Infosys is one of them. Pfizer is another, since it has been the most consistent player amongst the major pharma companies. Hero Honda and L&T (in cement) are the other picks since both have been high growth companies.
Motilal Oswal Sector Analyst Mahesh Patil
On sectors that will perform in 2000:
In the IT sector, the growth momentum will be sustained in the next calendar year. But since the valuation will be corrected, it will be a good entry point.
On the stockpicks:
My top five stocks are Infosys, Pfizer, ABB, L&T, Britannia. As far as Infosys is concerned, the bigger guys will grow faster. ABB has a good order backlog, Britannia has good market strategies, Pfizer has good alliances and market strategies and L&T is restructuring.
Hormuz Maloo of Kotakstreet.com
On the sectors that will outperform:
The IT sector will continue to perform. But IT scrips may or may not go up because funds already have high exposures to this segment. Shares of good IT stocks can double. Media and telecom scrips could go up because exposure to these sectors is not as high. There's nothing much happening in old economy stocks so there won't be much action here except in public sector companies where divestment is expected.
On the stockpicks:
My picks are Mukta Arts, Creative Eye, Infosys, VisualSoft, HCL Technologies, Mascot Systems, Bata and Hind Lever Chemicals.
Infosys and VisualSoft shouldn't have a problem matching their past growth rates. Mascot's share price is attractive. The company has just started growing at 100 per cent, so it probably has more (growth) ahead than behind. Bata has always been volatile. Its performance has also been volatile. There's a possibility it could reach Rs 125-150. Hind Lever Chemicals could go up depending on government policies. For example, if the government announces that subsidy on fertilisers will be scrapped, the stock will move up.
Chief investment officer of major domestic fund (anonymity sought)
On sectors that will outperform:
I don't look at investments in any particular sector. I look at specific companies. But in terms of the overall market, I think the market will outperform in the current year. My outlook is very positive.
On stockpicks:
My top five picks are UTI Bank, Asian Paints, Marico, MRO TEK, and Novartis. These are strong companies with good managements. They can survive tough times. They can outperform their competitors and, in the intermediate term, that is in the next 12 to 15 months, I think the kind of plans these companies have will make them even more strong companies. Amongst the five, the only company which is currently not a strong one is UTI Bank. But, looking forward, it will be one.
Prashant Jain of Zurich India
On sectors:
By and large, all the sectors are reasonably priced and will perform well. In particular, pharma and automobiles should do exceedingly well.
On stockpicks:
My top five picks are NIIT, Raymonds, Bhel, ITC and Pidilite. All of them have good managements and hold strong positions in their respective markets. The have a potential for good growth. They are also relatively cheap compared to the growth potential.
My outlook for the market in general is positive. As valuations are considerably cheap, I think the market should do well in 2001. A scrip like Infosys should give you a 50-60 per cent return in the year ahead.
Chandan Desai of JM Mutual Fund
On sectors:
My picks for sectors that will perform in 2001 are IT, pharma and petroleum/refineries. The outlook for the market is positive. The main reason for the market crash in December has been the TMT sector, and this was because of concerns about the IT sector, which have been overplayed. Once the new allocation for FIIs are made in January, for which India's weight is more or less the same, FII inflows will help the market improve.
On stockpicks:
My top five picks are Tisco, IPCL, Reliance, Infosys and Cipla. I like Tisco because its fundamental performance is good. There is an increase in value-added products, and their margins are on the rise because of this. Tisco's employee strength has come down from 78,000 to 50,000 and is likely to reduce further. Their costing will help them have a good topline growth and their cost efficiency will help improve their bottomline. The global steel cycle is also just starting to pick up. So this should also have a positive impact on Tisco's growth. The divestment process that will take place puts IPCL as a good buy as it is currently undervalued. I would put its intrinsic value straightaway at Rs 150 per share. Reliance has the best management and the stock is decently priced even at current levels (around Rs 340) The company is doing well in the current year. The infocom venture is also expected to take off well. Infosys is a very well-managed company and whatever the concerns about the IT sector they will not affect Infosys. These concerns are being overplayed. Infosys has a full order book for the next three years and on January 9, when it declares its Q3 results, it will prove this with a good performance. Cipla's R&D initiative will pay off and will be a major trigger point for the stock. The company has strong export growth. With improved margins the company's bottomline will improve significantly.
PART II: Pros pick the best stocks for 2001
Source: Investment Research Information Services Limited (IRIS)
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