Go long to cut subprime losses

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Though the market has recouped much of the losses suffered in the wake of the turbulence in global markets last month, there are a handful sectors which have lagged the recovery process.

Investors in high-retail exposure sectors like IT, construction, automobiles and banks will have to stay invested long-term, if they want to exit without logging losses.

ET conducted a sample study on various sectors over the past three months to analyse the impact of subprime crisis on Indian stock markets. As predicted by market mandarins, the crisis has not impacted the market in toto; only stocks in sectors that previously attracted huge foreign institutional investors (FII) interest have been hit , owing to pull-outs and redemption by foreign investors.

“Subprime fears have been factored in by Indian investors. There is nothing that can link India to the US subprime zone. The market witnessed some downtrend during the subprime days; but that was just because of prevailing negative sentiments in global markets. Now is the time to buy good stocks. They should, however, be cautious in their approach,” Indiabulls Securities CEO Divyesh Shah said.

According to market watchers, sugar is one sector that has not been hit by the subprime at all. As a matter of fact, the sector has not been doing well over the past six months. Sugar stocks are taking a beating on fears that the sugar market is in for a surplus for next two seasons.

Secondly, sugar being a commodity is expected to have peaked in its upward trajectory in 2007. Locked-up investors should exit sugar stocks on the upside. If they are entering sugar stocks now, they should be ready to hold them for at least 3-4 years.

The only positive trigger that can propel the sector is a surge in crude prices to around $85 per barrel. This will ease global sugar prices and increase demand as most big producers would then get back to ethanol production, sugar analysts said.

Construction & realty sector has fallen nearly 7% over the past 33 trading sessions. Construction, analysts said, was one sector that was badly pounded as a result of the subprime worries.

Though indirect ripples could not be ruled out, subprime should not affect Indian real estate sector as much as it impacts European countries and the US. There may be some blips or dips in real estate sector as it is closely related to mortgage loans; infrastructure sector looks perfectly fine.

As far as India is concerned, the construction sector would continue to do well in the long term. The sector should do well once inflows start strengthening, experts said. “To be on the safer side, investors can overlook real estate stocks for some time; infrastructure companies look good even in these market conditions,” said a fund manager of a domestic mutual fund house.

IT shares are still not very encouraging as the sector continues to be linked to the irregular currency movements. Though, most analysts believe, IT companies would come out with decent earnings figures in the third quarter, there is still an air of apprehension among investors.

Broking houses are advising investors to value-buy frontline IT stocks. Sectors like hospitality, logistics, banks and automobile, too have not really managed to participate in the post-sub prime rally. All these sectors are down in the range of 3% to 6% since July 24.