With major companies putting out their earnings data, stock markets analysts are busy with their spread sheets. Many have put out negative ticks and are earnestly lowering expectations from future earnings. With commodity prices rising, high input costs are already hurting businesses. Interest rates are expected to stay firm for another six months. In a sagging market, everyone talks about ‘defensive’ shares to be added to the portfolio. These are usually stocks that investors could rely on for better returns in tough times.
Stockbroking firm Emkay Shares is bullish on agriculture inputs, pharmaceuticals, consumer goods and IT services sectors. Securities firm Jefferies has also gone to the extent of suggesting sugar and IT services sector shares as a hedge against a poor monsoon. In such a situation, sugar sector shares tend to do better as sugar prices go up. The firm argues that a poor monsoon could lead to poor harvest and add further to the food inflation.
Our analyst Shishir Asthana picks five such ‘defensive’ shares for you to look at in case you feel things are going a bit tough. These picks are on the basis of their resilience to market volatility and visibility of long-term earnings.
Divi’s Laboratories is one the biggest and most recognised Contract Research and Manufacturing Services (CRAMS) companies in the country. The company clearly has the first mover advantage to capture significant share of pharma outsourcing by innovator companies. Divis has already been identified as a strategic partner by most of the top 20 global pharma companies. Two of the products that Divi’s used to produce on smaller batches are going off-patent. The company will thus see a surge in volume from these products, which will be both topline and bottomline accretive.
Gujarat State Petronet involved in gas distribution is likely to add substantially to the topline post the recent winning of three cross-country pipelines. The company has been till date operating only in Gujarat. The three cross-country pipelines provides it a pan-India growth opportunity. Though there will be near term pressure on the stock as the tariff, capex and funding are yet to be decided, the weakness in the stock offers a good entry opportunity for long term investors.
Sun Pharma is one of the most consistently performing companies in the Indian pharmaceutical space. It continues to outperform its competitors and is among the leaders in the segments it operates in. Its focus on urban areas gives the company better operating margin. The US business is on firmer ground with improving visibility on the warning letter clearance for Taro’s Canadian facility. Ongoing sales recovery at Caraco and a possible acquisition in the US will add to the company’s performance.
Coal India is the largest coal company in the world. It sells its entire output (415 million tonnes in FY10) in the domestic market. Coal India sells coal at a significant discount (55- 60%) to international coal prices. The company is not able to run at its full potential due to logistics issue, lack of rakes by the railways at its mines. However, the company has been mandated to source coal from other countries and supply them to the domestic players. Due to Coal India’s size and customer base, the company is getting long terms contracts at substantial discounts. With over 40,000 MW of coal base power plants lined up over the next few years and the company having enough room to increase its prices, the stock is a good buy over the long term.
Sintex which has traditionally been known as a custom molding company has over the years built up capacity and size in pre-fabricated construction. This business has an inherent time and cost advantage over conventional businesses. Market expects higher double digit growth rate for this division. A likely sale of its textile division can add further value to the stock.