S Naren’s art of contra investing: HDFC Bank, Natco Pharma, other 7 top picks down up to 39% from 52-week highs. What this means

The Indian stock market has seen a remarkable rally after plunging to record lows earlier this year. While many investors missed the rally, ace investor Sankaran Naren’s top contrarian picks continue to reap profits.

ICICI Prudential Mutual Fund launched the ICICI Prudential Contra Fund managed by S Naren and others last month. A contrarian strategy, as the name suggests, is an investing style which contradicts market trends, which means finding investment opportunities in companies that are currently out of market favour or undervalued temporarily, yet exhibit strong fundamentals and a turnaround potential over the long term.

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HDFC Bank shares hold the biggest weightage in Naren’s contra fund. When the fund was launched, the shares of India’s largest private lender were plunging to fresh 52-week lows everyday as earnings and leadership worries weighed. After hitting a peak low of Rs 669 apiece on October 28, the stock saw a sharp turnaround.

In less than 10 sessions, the stock rallied over 22% to hit a high of Rs 817.85 apiece this week. While the stock is still around 20% down from its 52-week high of Rs 1,017.50 apiece which it hit in December last year, the recent rally has clawed back some of the returns lost during the previous selloff.

Natco Pharma holds the second biggest weightage on Naren’s contra fund. After hitting a 52-week high of Rs 1,215 apiece in May this year, the stock rapidly dropped more than 36% in nearly five months to hit a 52-week low of Rs 774 apiece in October this year. This came as weak earnings along with other factors spooked investors. However, the stock has recovered around 5% since then to close at Rs 810.45 apiece.

Britannia Industries, DMart owner Avenue Supermarts, Medplus Health Services, Shree Cement, Bajaj Finserv, Tata Motors Passenger Vehicles, Pidilite Industries and ITC are among his other top 10 picks for the fund. These stocks which have 3-5% weight in the newly launched contrarian fund, have fallen up to 39% from their 52-week highs.

Other holdings of the fund include Biocon, ONGC, Balkrishna Industries, Atul, Motherson Sumi Wiring India, Swiggy, Sonata Software, Reliance Industries, PB Fintech, Indian Oil Corporation, HDB Financial Services, Hyundai Motor India, Pfizer, PI Industries, Mastek, TeamLease Services, Timken India, VIP Industries, Berger Paints India, Rallis India, Suprajit Engineering, Whirlpool Of India, Aadhar Housing Finance and Tata Capital.

The portfolio of this contra fund is spread across 13 sectors with highest allocation in retailing of around 12.17%. This was followed by 11.79% in automobiles and ancillaries, and 11.21% in the healthcare sector. The fund holds 42.35% in large caps, 17.89% in mid caps, 24.27% in small caps, and 15.5% in others.

The scheme will be managed by Sankaran Naren, along with Dharmesh Kakkad, Sakshat Goel, Gaurav Chikane. The performance will be benchmarked against Nifty 500 TRI. The minimum investment amount is Rs 1,000 (& in multiples of Re 1).

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Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.