6th January, 2009

The global meldown is going to affect Indian stock markets adversly and most experts do not see much recovery in the stock prices in the first two quarters of 2009.Revival in equity markets is expected only post second quarter of 2009. Investment experts belive that it will be the large cap companies with a proven track record, high earnings visibility and low debt which will recover first.

Indian Stock markets lost more than 50 percent in 2008 with individual stocks falling by as much as 75 per cent from their peak levels in January.

The Indian companies are feeling the impact of the slow down and  industrial production has decelerated significantly due to slackening demand,companies are cutting production, laying-off employees and postponing capacity expansions. The IT companies are feeling the effect of global recession and same is the case with export-oriented sectors like textiles, gems and jewellery, leather and apparels.

According to financial experts the FY10, earnings estimates for the 30 Sensex companies is projected between (-) 10 per cent and 12 per cent. This brings us to a sensex earning of around 960. The only consolation seems to be that most of the bad news is already factored in.

According to most experts the Indian stock markets should trade up to 12 times FY10 estimated earnings, in a band of 8,000-11,500. Many analysts feel that their is not much downside left from current levels and an improvement in economic and corporate numbers will start from mid-2009 becuase of the government policy measures.

Hot Sectors

It is better to play safe and invest in large companies with a proven track-record. Companies with integrated operations, strong balance sheets, low leverage or ability to complete financial closure for capex, and low working capital requirements should be preferred.

Because of faling interest rate those sectors which are interest rate sensitive like banking, auto or even in real-estate  are finding favour.

Local consumption and demand makes FMCG and utilities among the preferred lot even as there is already some amount of premium built in their valuations, due to the stability they provide. Additionally, users of commodities are expected to outperform.

Sectors like commodities (metals), capital goods (due to order slowdown), real estate and IT (weak demand) will be the laggards of 2009.

Among the BSE 500 let us exclud companies with high debt levels or weak financials. Only those with a proven track record, good earnings visibility, strong cash flows and ability to raise debt are considered, as they will be in a better position to withstand tough times. Notably, many of them are leaders in their respective businesses, and their stocks capable of delivering 18-20 per cent returns over the next one year. Here is a list of top 10 stocks which might perform well in 2009.

Apollo Hospitals

Apollo Hospitals has been growing its sales at an annual rate of 21 per cent in the last five years. The company has leveraged its core healthcare services business to launch pharmacies, and testing centres, and is now looking at manufacturing its own drugs and offering clinical trials. A focus area will be the growing medical tourism market (current market size of Rs 2,000 crore, and expected CAGR of 55 per cent till 2012). For Apollo, while foreign patients account for 17 per cent of the total patient volumes and roughly a third of revenues, the company expects this to improve to 25 per cent and 40 per cent, respectively.

The pharmacy segment, which accounts for a fifth of the revenues, is expected to grow at a much faster pace as the company ramps up the number of centres to 1,000 in FY09 from 750 currently. While operating margins are hovering around 17 per cent, numbers will improve going ahead, when the pharmacy segment (yet to make a profit at the EBIDTA level) turns corner and the company's asset light strategy (manage hospitals rather than build) comes into play.

With strong demand for quality medical services, Apollo, a leader with a network of 43 hospitals (10,000 beds) will be able to grow its current reven