Market verdict: Stick to consumption plays

With markets losing four per cent in the past two days and double that in a week, money managers and analysts are advising investors to stick to large-caps, avoid leveraged plays and companies with higher dependence on exports or exposure to developed economies like the US or the euro zone. Experts believe the markets may witness volatility in the short term, as investors turn risk-averse and money gets pulled out from emerging market equities.

Mahesh Patil, head, equity, domestic assets, Birla Sun Life AMC, believes that given the volatility and uncertain environment, it is best to avoid companies with a global exposure such as commodities, and advises investors to turn cautious on software services.

Among large-cap companies with high global exposure are Tata Steel, Hindalco, Tata Motors, Suzlon, Crompton Greaves, Punj Lloyd and Areva T&D. Investors should also stay away from companies in the information technology services, apparel and gems and jewellery segments for some time.

When markets were range-bound, money managers had advised investors to look at stock-specific plays. However, given recent events, investors should keep a top-down perspective on investments. Patil prefers domestic consumption plays, as also interest rate-sensitives, given that rates are expected to peak. In addition to a large global exposure, investors should also avoid companies sitting on higher debt, believes

Deven Choksey, managing director, K R Choksey Securities. Here, companies such as Kingfisher Airlines, Jet Airways, DLF and Reliance Communications are better avoided.

Those likely to be impacted due to government policy interference such as fertiliser stocks, oil marketing companies and mining PSUs are best avoided, Choksey says. Among his preferred plays are Mundra Port, Bharat Forge and KPIT Cummins. In rate-sensitives, he prefers private banking players such as ICICI Bank and IndusInd Bank, due to their valuations (P/BV) and due to lower downside risk.

Given the volatility and risk aversion, companies with high cash flows are likely to be preferred. Sameer Kamdar, MD & CEO, ASK Investment Managers, advises investors to look at high-quality companies in sectors with secular growth rates and which qualify as annuity businesses.

He believes FMCG (fast moving consumer goods), pharmaceuticals and banking are good bets. Infrastructure, given the uncertain environment which might impact order books, as well as cyclical plays such as commodities, are best avoided, he says.

Going ahead, experts believe the market will get very attractive if there is a further correction in the range of seven-eight per cent, which will put the Nifty in the 4,700 zone.