As rupee weakens, investors can look at export companies: Experts

MUMBAI: Should investors dare to catch a falling knife? That is the question market participants are asking after the broad-based carnage on Dalal Street on Monday.

With the market expected to decline further, investors may be tempted to buy battered stocks. But, not all stocks are compelling purchases yet. Investors would do better if they bought shares of exporting companies such as technology, pharma and auto ancillaries which appear to be best poised to outperform most sectors because of weakening rupee. Analysts said investors could also consider nibbling at stocks of sectors that benefit from lower commodity prices, mainly crude. “Currency depreciation has given a value to export-oriented pharma, auto ancillaries, IT companies whereas a fall in crude to benefit oil marketing and agro chemical companies,” said Saravana Kumar, CIO, LIC Nomura Mutual Funds.

The rupee has declined 5.19% against the dollar so far in 2015. Analysts believe, within exporters, valuations of technology stocks are cheaper than that of pharma stocks. Stocks in the technology sector are trading at an average price to earnings (P/E) ratio of 14-19 times 2016-2017 estimated earnings, according to Angel Broking. Pharma stocks are trading at 25-27 times on an average, it said.

“While both sectors are equal beneficiaries of the falling rupee, we believe that IT which has higher net export in the range of 40-50% will be a major beneficiary of the same, followed by pharma-ceuticals,” said Sarabjit Kour Nangra, analyst, pharma and IT, Angel Broking. “We believe that IT stocks are well poised and are not factoring in much benefit from such depreciation”.

BSE’s information technology (IT) index fell about 5%, while the healthcare index dropped 6.8% on Monday. Phani Sekhar, fund manager, PMS, Karvy Stock Broking, said,” The fall in crude oil prices is good news for India and investors should buy the large-cap quality stocks especially from pharmaceuticals, banks, IT, auto and consumers, but avoid stocks from metal and commodity sectors,” he added.
Stocks such as Bank of India, Just Dial, Gail India, ONGC, Tata Motors, Coromandel International, Canara Bank have fallen between 40% and 60% from their 52-week highs. About 25 large-cap stocks such as Yes Bank, Tata Power, Power Finance and REC are trading at a discount of over 20% to their 200 days moving average.

Sandeep Nayak, CEO, Centrum Broking said, “Investors should invest in a staggered manner starting with 20-25% of the investible capital till the dust settles.”