How to Profit from the meltdown?

By: Vritika
The quarterly earnings seasons, which has just started, offers a lot of stock market tips for your near term buy. Infosys set the tone of the things in store for the IT sector. Though it met the quarterly targets, the Bangalore company cut its full-year guidance. Cutting its target is something unusual for Infosys which has consistently overshot its guidance. The guidance of Indian IT biggies says that the global crisis is not going to melt away too soon.

On the other hand, another early bird Axis Bank reported a massive jump in its net profit for the second quarter on a big jump in its total income. One thing is clear: our domestic growth remains strong even on the face of the global crisis. This is a strong indicator to base our stock pickings.

The stock market tip: look for companies that have strong domestic business, good cash flows, less leveraged position and trading at a discount. Sooner or later, money would flow into these counters. Why not be an early bird and pick these up? The pullout of the FII money has seen many of these stocks trading at a very attractive price. But stick only to frontline companies that have the wherewithal to withstand the current crisis.

Among the frontline stocks in India, you will find many. M&M has a strong domestic business. It is a leader in the tractor segment. With good monsoons and the agriculture waiver package, this segment is going to see a big boost. The stock is trading at a forward FY09 PE of just over 5 per cent. But don’t expect this stock to give you very good returns in the short-term. The liquidity remains tight in the Indian system. It is a very good long-term buy.
Another hardy stock is Tata Steel. It is trading at the lowest forward PE among the Sensex stocks. Though metals stocks across the globe have suffered the rout on concerns of a global recession, given the strong domestic business of Tata Steel, it is well placed to fight its way up.

Another good pick is L&T, which is trading at a forward PE of just over 13. This capital goods stock has a strong domestic business. And the recent passage of the Indo-US nuclear deal is likely to further boost its topline further. It is a major player in the domestic power business. And major power projects are scheduled to go on steam.

Among the banking space in the BSE-30, SBI, HDFC Bank and ICICI Bank look good bets. The banking sector is going to benefit as the Reserve Bank of India joins other central regulators in cutting the rates. The largest bank in India, SBI, is trading at a forward PE of just over 8. SBI has many other positives to its side. It has probably the lease foreign exposure among these banks. Second, as people look to the safety of the government-owned banks, it is going to see an increase in deposits. A good way to benefit from the PSU bank pack is to buy PSU bank ETFs. ICICI Bank, at a forward PE of just over 6, also fits the criteria. Its stock has been beaten down to so low levels that any downside, if any, looks limited.

Vritika is an investment advisor and associate editor to profit.ndtv.com, providing market news india, stock market news and information on mutual funds in India.