Best Contrarion picks

Best contrarian picks
In equity markets, a person who dares to go against the tide wins big because
when the tide turns he is best prepared for it while others are caught unaware.
This is known as contrarian strategy and has delivered very good returns in
the past especially after the markets have peaked. For this strategy to succeed,
you have to buy stocks at maximum pessimism and when you are confident
about good prospects for the company/sector in medium to long term.
Besides the right timing you need a lot of patience too as in short term it may
continue to lag behind current favourites of the market.
Two sectors which are ripe for contrarian investment right now are banking
and automobiles. Let us look at the rationale behind them:
 Banks, automobile stocks have been beaten down a lot while actual
performance is not so bad looking at the credit growth or automobile
sales.
 High interest rates and high inflation which have hit these sectors hard
seem to have peaked and things will get better only over time as crude
oil prices drop.
 A major proportion of the losses (currency futures) reported by banks
are marked to market which are just notional losses and can recover
soon in future (just like the losses in your portfolio are notional until
you book them by selling).
 Due to Basel II norms, small banks need to merge with bigger banks in
next 2-3 years which will create a lot of value for the shareholders of
the big banks. Our recommendation for investors is to concentrate on
top 5 banks in private sector, top 5 in public sector and specialised
banks catering to niche market segments like Yes bank.
 25% of world population below 25 years lives in India which is a huge
opportunity for both banks and automobile sector as the income rises.
Young people tend to take more loans from bank and buy luxury items
like cars more.
 India is set to become an export hub (due to cost advantage) of small
cars to other emerging economies like Nepal, Sri Lanka, Africa etc.
and hence companies like Maruti, Tata Motors are going to be big
winners. One achievement we all Indians should be proud of is that
Maruti India is soon set to overtake Suzuki Japan in terms of number
of cars produced.
 Banks like SBI, ICICI etc have very valuable subsidiaries in
businesses like insurance, asset management etc. value of which is not
fully reflected in the current prices. Example: ICICI insurance arm is
roughly valued at Rs 57000 Crore!