The slowdown-proof stocks

It has been a turbulent year for the Indian stock markets—the Sensex is down more than 50 per cent (on Oct. 10 ’08) from its peak of 21,206.77 on Jan. 10, ’08. Big bank failures have spooked the stock markets globally. Now a credit crunch threatens to derail the global economy and plunge it into a recession. India, though somewhat insulated, may see its growth rate taper to around 7 per cent in 2008-09.The earnings growth of many companies may suffer in the current slowdown, and their stock prices, already down, will almost certainly fall further. Hence, investors must pick investments that will be least affected by the slowdown. This is a good time to enter the market for the long term, though in the short- to mediumterm, there could be further damage. Says Apurva Shah, Head-Research, Prabhudas Lilladher: “Speculators and traders can lose their shirt in this market. The approach should be to invest in fundamentally sound companies with a two- to three-year horizon.” We spoke to a cross-section of market analysts to identify nine stocks that are relatively insulated in this age of turbulence and those that make good long-term bets. This is what they suggested.
Aban offshore Aban Offshore provides drilling and services for production of hydrocarbons and offshore exploration to the oil industry in India and abroad. The company has 20 offshore assets, which in-clude 15 jack-up drilling rigs and two drill ships. Says Ajay Parmar, Head, Institutional Research, Emkay Global Financial Services: “Most oil companies are deploying their huge cash reserves in exploration and drilling activities. This has led to increased demand for offshore oil drilling rigs and this should directly benefit companies like Aban.” Aban Offshore has been delivering sound earnings numbers. In the first quarter of 2008-09, its net profit increased 152 per cent while revenues were up 94 per cent. This was largely due to higher prices for four of its assets. The stock has taken a huge beating in the downturn, but it’s a cash-generating business and the expected future cash flow should provide investors enough comfort.
Axis bank Among private banks, Axis Bank is well placed to ride out the current financial storm. The management has already said that in spite of the unfavourable macro-environment, the bank will deliver 40 per cent-plus growth in advances this financial year. For the first quarter of 2008-09, Axis Bank delivered over 80 per cent Y-O-Y growth in net interest income and net profit, driven by strong growth in all its core earnings streams. The bank’s capital adequacy ratio is at a comfortable 13.3 per cent. Its expansion plans are on course. In the first quarter, it opened 42 branches and extension counters and 140 ATMs. Says Hitesh Agrawal, Head, Research, Angel Broking: “Axis Bank is a good bet on account of its good management, attractive CASA deposit franchise, relatively low-risk lending franchise and multiple sources of sustainable fee incomes.”
Bharti Airtel As the Indian mobile telephony story has played out, Bharti Airtel has consolidated its position as the market leader with a 25 per cent market share. At the end of 2007-08, the company had 35 per cent more subscribers than its next best competitor, Reliance Communications. The company has also grown its other businesses of fixed line, telemedia, enterprise solutions and long distance telephony. Meanwhile, Bharti has spun off its passive telecom infrastructure assets into Bharti Infratel, which has potential for growth. Says Agrawal: “Bharti Airtel continues to impress and outperform the mobile telephone sector with its performance on the subscriber additions front.” Telecom will be one sector that will be least affected by the slowdown. This company has a strong earnings visibility over the next few years.
BHELThis Navratna company caters to the core sector of power generation & transmission. It is scaling up operations and gearing up to meet the power generation targets of the 12th Five Year Plan. It is expanding its capacity to 15,000 MW per annum in the next two years at a total investment of Rs 3,200 crore. The company has declared robust numbers recently with revenues and profit growing by more than 30 per cent in the first quarter of 2008-09. More comforting is its huge order book position of Rs 95,000 crore. Says Parmar: “BHEL is taking steps in right direction to address supercritical orders and is increasing its pace of execution while also expanding capacities.”