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What not to buy in 2008

Hero Honda and Hindustan Unilever are set to lead the laggards list in 2008, say leading brokerage houses, reports BS Srinivasalu Reddy.

business Updated: Jan 03, 2008 01:16 IST
BS Srinivasalu Reddy

At the beginning of every year investors encounter a dilemma on which stocks they could bet on for decent returns during the year. However, it is even more important to know which stocks not to buy to avoid losing his shirt altogether or to curtail losses.

To help investors get an idea on the issue, Hindustan Times conducted a survey that saw a participation of 13 brokers. In all they have identified 24 stocks from A-Group that are expected to under-perform the market, and as such to be avoided having them in their portfolio, if possible.

The dubious distinction of topping this chart went to two-wheeler major Hero Honda and FMCG (fast-moving consumer goods) major Hindustan Unilever Ltd (HUL), with four and three analysts respectively recommending them to be under-performers during 2008. TVS Motors, Cipla, Infosys and Wipro were voted down by two brokerages each.

Referring to Hero Honda, Ashish Kapur, CEO, Invest Shoppe says: “Two-wheeler manufacturers are struggling to protect their margins. Bajaj Auto is trying to restructure to wriggle itself out of this situation. The sector may take some more time to get back its lost charm.”

Another research head of a broking house, who wished not to be named, said that Bajaj Auto was planning to counter the lull in the two-wheeler market by launching new products, even on the back of its phenomenal success in establishing itself in the bikes segment.

Among the heavy vehicle manufacturers, Ashok Leyland is also expected to under-perform according to a broking house. The reason: Lack of new products and clear direction of growth. However, Tata Motors is expected to perform well, the analyst added.

Punjab Tractors, which was acquired by Mahindra & Mahindra recently, would take at least 18 months to expand its market across India from its focus on North India.

Given the market is at its peak already, the investors seem to look for some exciting news or expectation from the companies.

“The market is looking for opportunities that excite them, where value unlocking can happen through mergers and acquisitions, scalability, turnaround etc. The market is not interested in stocks that offer just 10-15 per cent growth,” Kapoor added.

HUL falls in the un-exciting category, according to a brokerage voting for avoiding the stock in one’s portfolio. The market sees this kind of excitement to come from ITC, Dabur and Marico in this segment. HUL, which has got thumbs down from three brokerages, does not have clear strategies for an exciting growth from the present level. Mostly they are confined to protecting the margins, said an analyst.

The analysts, who expect some IT companies like Infosys, Polaris Soft, Mastek, Hexaware and Wipro to under-perform the market during 2008, were citing appreciation of rupee and rising costs hurting their revenues. A notable exception in this category is TCS.