Bear run hurts defensive scrips

Traditional defensive sectors such as pharma, banking and engineering have failed investors in the current bear market. Pharma majors barring a few MNC shares have been the biggest losers, while banking and engineering scrips have not been spared either.

Pharma stocks lost on concerns about future growth and recent downgrades by a few leading foreign brokerages.

Ranbaxy Laboratories has fallen by 6.84 per cent from Rs 969.65 to Rs 903.30 since May 17, and Cipla by 6.52 per cent from Rs 216.40 to Rs 202.30. Dr Reddy's has been the biggest loser, with the scrip crashing 8.16 per cent from Rs 787.65 to Rs 723.40 during the same period.

Cadila Healthcare was down 6.70 per cent, and so were Biocon (down 1.82 per cent), Divi's Labs (4.53 per cent), Dishman Pharma (10.13 per cent), Elder Pharma (8.90 per cent), Matrix (2.13 per cent) and Wockhardt (19.66 per cent).

Till a month back, these were considered the safest stocks in a declining market.

Why have the defensives failed to defend? Says Rushabh Sheth, head, equity funds, Kotak Mutual Fund: "When the markets fall over 20 per cent in less than two months, there is no room to hide. Even the so-called defensive stocks have taken a beating. But selected stocks among these sectors still look attractive and we have to take a longer term view."

Fund houses have made some adjustments to their portfolios. However, they are still holding on to banking stocks. A major shift has been to the information technology sector.

Sashi Krishnan, chief executive of Chola Mutual Fund, says, "IT is one sector which is expected to be unaffected by the policies of the government. In fact the government has also said that the IT sector will be given encouragement."

That, and the fact that most brokerage houses have put out optimistic first quarter earnings estimates for the sector, has caused many fund houses to give greater weightage to IT, though no one has really gone overweight.

PSU stocks, on the other hand, have been slowly dumped. Industry circles say that fund houses had been divesting themselves of these stocks even before the election results were known.

Sharad Shukla, head of investment advisory at IL&FS Investmart, says, "Defensive sector stocks have fallen sharply in the last one month in line with the overall bearish trend in the market. However, it terms of value, a few stocks are still attractively valued at current levels. Churning is happening with investors moving out of smaller growth companies to pure value stocks, which are not build up on growth expectations."

Engineering stocks have also faced selling pressure amidst the overall weakness in market sentiment. Stocks such as Alfa Laval, down 4.09 per cent from Rs 475.05 to Friday's close of Rs 455.60, have ended negative in the last one month. Among the few gainers were Bharat Earth Movers, up 21.06 per cent from Rs 101.60 to Rs 123.00.

Only dividend-oriented MNC stocks have managed to fetch positive returns in this bearish market.