If you are investing in the equity asset class in 2018, you will have to seriously think contrarian, if you wish to make money.
Almost every space in the Indian equity basket has become expensive. Midcap and small cap stocks are at record levels and large cap stocks like Reliance, which barely moved for months, have now become a favorite. From a one year holding, here are a few places where you can consider a contrarian bet.
Pharma shares have been an underperformer in 2017. However, we have seen select stocks rally in the last one week or so.
Though Sun Pharma shares have gained recently, it is likely that the stock may have some more potential upside in 2018. Clearly, this is one sector that has underperformed the benchmark indices and may give good gains in the coming year. Investment in pharma may also be good considering that it is a defensive play.
Low priced stocks
Low priced stocks can tend to rally and give far superior returns, if there is a turnaround story. For example, Rcom shares have doubled in just a week's time, as the company announced a complete debt payment schedule. Similarly, JP Associates shares have also rallied on hopes of debt reduction.
One can bet on stocks like IVRCL where the stock at Rs 5.20 barely has any downward risk. The company recently sold stake in two of its road projects of almost Rs 800 crores. The company has debt of around Rs 8,500 crores and does also have sizeable assets.
Stocks that may benefit from elections
Next year will see elections in several states and preparations for the 2019 central government elections.
This means media companies would be big beneficiaries. Stocks like Hindustan Media Ventures, which is available at a p/e of just about 10 times, looks undervalued at the moment. Another good company is the Dainik Bhaskar publisher, DB Corp.
One can also look at stocks from the agriculture sector, as it is almost certain that the government would increase outlay for the sector. However, some stocks like Jain Irrigation have already rallied and hence one may have to look at stocks that can add value.
Move money from equity to debt
With the Sensex p/e at 25 times trailing p/e, it maybe time to book profits. It is advisable to move money from equity mutual funds to debt mutual funds, at least partially. Returns in the last one year have been stupendous. If there is a serious correction of 10 to 15 per cent in the index, one can consider moving to equity mutual funds all over again.
The Union Budget 2018-19 too may not have anything great for the markets. In fact, the fiscal deficit may rise and we may see more populist moves. All in all, do avoid investing large sums of money at the current levels.