9 gems for a tough market

What happened on 21st January earlier this year still sends chills down many spines. History was made, but not something that anyone wants to be kept reminded of. Yet, one can`t even forget the events that took place on that fateful day. It was doomsday for the Indian stock markets.

The Sensex witnessed its biggest absolute fall in its history, shedding 2,062 points intra-day. It closed on 17,605.35, down by 1,408.35 points or 7.4 per cent. Earlier in the day, it had touched a low 16,951.50.

When it crashed, the Sensex burst the bubble on the big Indian investor dream. Shattered dreams, broken mindsets, lost careers and collapsed businesses were some of its aftermaths. However, in the months gone by, the Sensex has managed to regain some semblance of stability. But while a number of investors are still vary of going to the markets, there are a few who have had no choice.

The mutual fund managers were amongst the worst hit by the market slide. With rumours and predictions of the Sensex touching the 25k mark being floated around, these wise minds of the industry hardly saw the big fall coming. The months that went by have been times of resurrection for the fund managers as well. It would be interesting to see what they did at their end to keep their heads above the water. Let`s take a look.

The Indian markets had delivered an average of 45 per cent for the past three years but was down by 23 per cent in the March 2008 quarter. During this quarter, equity assets of all funds combined declined by over 35 per cent. The equity assets that stood at Rs. 2.7 lakh crore at the end of December, 2007 had declined to Rs. 1.34 lakh crore in March, 2008.

During this period, fund managers stacked up on some stocks while offloading on others. A stark move that catches attention is that the funds have pared their holdings in State Bank of India and NTPC during these three months. Notably, holdings of other Sensex stocks were also reduced in large numbers, like, Grasim Industries (21 per cent), Maruti Suzuki (18.5 per cent), ICICI Bank (13.5 per cent), Infosys (9 per cent), Reliance Energy (8.5 per cent) and Bharti Airtel (5.15 per cent).

The combined equity holdings of all mutual funds are spread over a total of 903 stocks. Of these, the top 10 stocks by value account for over a quarter of the assets and the top 30 account for a little less than half of the total holdings. Interestingly, 70 per cent of these assets are spread over 82 stocks and the bottom 10 per cent of the holdings are distributed over as many as 654 stocks.

Now, after these figures have been fathomed, we narrow down to the top 30 holdings. A look at these 30 stocks reveals that they comprise of 12 stocks that are not part of the market barometer Sensex. Furthermore, when these holdings are compared to the December 2007 figures, we find that out of these 12 stocks, the mutual funds have increased the number of shares of nine companies. These nine companies are the ones that the fund managers are betting upon to give them better returns. Most of these nine companies belong to the capital goods and energy sectors, while there is one each from the financial services, pharma and media & entertainment sectors.

To arrive at these nine stocks, we researched the portfolios of as many as 363 mutual fund schemes and further analyzed the nine gems individually to give you a fair idea of what the fund managers are banking on...

Also see : The battle for `Sensex`! | Wal-Mart surprises the Street | Honda`s hydrogen-powered carText & Image: valueresearchonline