Indian stock markets are one place that you see a churn everyday. A stock that was unloved suddenly becomes a darling and vice versa.
At the start of 2015, pharma shares were the most loved. Suddenly, Sun Pharma and Dr Reddy's got entangled in FDA worries and pharma stocks were badly hit. Banking stocks were also buoyant at the start of the season, but, NPA worries have seen severe price damage in these stocks.
1) Federal Bank
Like most other banking stocks, this share has been hammered out of shape. The stock is currently trading at Rs 56, which is almost 30 per cent lower, than the price prevailing at the start of the year. The dividend yield on the stock is near 4 per cent.
The price to book value is 1.25 times, which is pretty low for a private sector banking player. The stock is trading at a p/e multiple of just 10 times, one year forward earnings.
Now, apart from this there are a number of other reasons to buy the stock. One is that non performing assets in the sector may have peaked. The second is that with the possibility of a strong economic recovery, it is likely that the banking industry may do well. When that happens, banking stocks may rally first, as they are a great proxy for the economy. This makes the share of Federal Bank a good pick at the current levels.
Oil and gas stocks are among the most unloved stocks today. This is because, crude oil has fallen from levels of $110 to the current levels of $35. ONGC, which is an exploration and production company has seen its share price fall from levels of Rs 390 to the current levels of Rs 233. In fact, the stock has even hit a low of Rs 210.
The company's fortunes are linked to prices of crude oil. The question then remains is how far can crude oil fall from these levels. From $35 a barrel, it looks doubtful that we would see any more downside. In fact, the probability of crude oil rallying to at least $75 is likely in the next couple of years. This is for a number of reasons.
One is that investment in the oil and gas sector is falling because of low crude prices. When that happens a few years down the line supply will not be able to keep pace with demand. The second reason is that at $35 per barrel, we may see a decline in production from shale oil, as they become increasingly uncompetitive. The last and the most important reason is that the Middle East region has always been on a boil. Any geo-political tensions can spark a rally in crude oil prices. This means a rally in the ONGC stock.
Among the good beaten down shares to buy as a contrarian bet.
3) ICICI Bank
ICICI Bank is another stock that has been beaten down. In fact, from levels of Rs 370, the stock has seen a sharp fall to levels of Rs 257. Like Federal Bank, the stock may gain from economic rebound and peaking of non performing assets. A great stock to buy on declines.
4) Cairn India
The Cairn India story is pretty much like ONGC. We expect the stock to rally as oil prices rally. A low p/e multiple and pretty decent dividend yields make it a great pick at the current levels.
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