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18,000 mark despite mo-st big companies failing to beat street expectations with June quarter results, investors are actually paying Rs 21.48 for every Re 1 earned as profit by the 30 large-cap stocks in the past 12 months. The market saw a strong correction on Friday and it could fall even further from the present level. As investors start counting the downside, the smart ones have started identifying defensive stocks to escape least-scathed if the market heads southward.

In the past, every time the mar-ket entered a bear phase, FMCG and pharma stocks used to be projected as defensive bets as their earnings are considered more protected when the market is on a downward move. But will that hold true this time? Or are there any new defensive bets emerging?

Benjamin Graham used an imaginary investor, called Mr Market, to demonstrate his point that a wise investor chooses investments on their fundamental value rather than on others’ opinions or direction of the market. Today, popular FMCG stock Hind-ustan Unilever is trading at 26 times its 12-month earnings per share. Colgate Palmolive is trading at 25 times while investors would have to pay Rs 40 per rupee profit earned by the likes of Procter & Gamble and Gillette India. This means prices of FMCG stocks are factoring in future growth faster than Sensex’s blue chips put together (nearly 22 times).

In the six biggest market corrections (when Sensex fell 10 per cent or more) in the past, FMCG stocks and some of the pharma stocks did manage to weather the storm better. Investors also look at other factors such as stable businesses and cash-generating models to come to the conclusion that these sectors are safe.

Individually, the HUL scrip has not been a great performer. The stock has gained just 63 per cent over the past five years when Sensex gained over 130 per cent. But in downturns, HUL has proved to be shock-proof on roughly half the occasions. Colgate, P&G and Gillette have far better records as defensive bets.

But will their rich valuations support their ‘perceived’ defensiveness if the market corrects? “FMCG and pharma stocks are looked at as defensives because they generate cash from businesses. Traditional defensives should be weighed on valuations to see whether they fit the bill or not. If they are over-valued, they cannot be defensives,” said Prateek Agrawal, head of equity at Bharti AXA Investment Managers.

With close to 30-50 per cent revenues coming from abroad, the pharmaceutical sector as a whole is hardly defensive, especially when US and Europe are being marked as global pain points. However, India-focussed pharma companies do have a reputation as ‘defensives’ in the past few bear phases. Stocks like Cipla, GSK Pharma, Aventis, Pfizer and Novartis performed pretty well and managed to protect investor wealth on four or five occasions in the six instances studied. However, valuations of these stocks continue to be at a premium with Cipla trading at 23 times, GSK Pharma even costlier at 30 times and Aventis and Pfizer trading between 23-28 times their last 12-month earnings per share.

Some market men want to look at infrastructure stocks as the new line of defence. Riding on growing demands, companies like Larsen and Toubro, Bhel, GMR and GVK have managed to post more stable earnings than traditional defensives in recent quarters.

Prakash Diwan, head of institutional business at Networth Stock Broking, said capital goods as a sector is at the right position of the growth curve. “Since the capex cycle is picking up for the economy, infrastructure-focused plays are good bets. FMCG’s lofty valuations after the recent run-up will make investors look for other defensives,” he said.

“We are already seeing a lot of activity. Projects are taking off, reforms are being fast-tracked, consumption is increasing on rising incomes and capex is poised for the next round of investment,” said Rakesh Arora, an analyst at Macquarie, which counts L&T among its top picks.

With L&T’s management maintaining 20 per cent revenue growth guidance for FY11, the market could very well look at this stock as a shield as it has a relatively stable business .

L&T has not done very well in the past when markets corrected. But other PSU infrastructure plays like Bhel, Gail and NTPC have shown remarkable resilience. Gail has fallen less than the Sensex on all six major corrections since 2006. Still, the cash-rich company’s stock has managed to deliver only average returns.

“It may look like an option, but infrastructure cannot be a defensive bet per se. I have a feeling regulated power utilities could be good shock absorbers if a correction sets in. Valuations are cheap in this segment as they have been among the worst-performing lot in terms of returns,” said Sankaran Naren, chief investment officer (equity) of ICICI Prudential Asset Management Company.

On the valuation front, both Gail and NTPC look very attractive with the gas transmission company trading at 15 times its FY10 earnings while NTPC is available at 19 times. A look at their past records shows NTPC has fallen less than Sensex on five out six occasions, which resembles traditional defensives.

Over the past five years, the company has given 190 per cent returns against Sensex’s 137 per cent rise. According to Satyam Agarwal of Motital Oswal Securities, NTPC is expected to commission 4,150mw capacity in FY11 (vs total capacity addition of 4,300 mw over FY08-10E).

“The same set of stocks can act as defensives every time. The nature of infrastructure stocks is such that they will require a lot of time to play out. They are long-term bets,” said Sharmila Joshi, co-head (PCG) at Emkay Global Financial Services.

Foreign brokerage UBS said PowerGrid can be a good long-term pick. “We expect India to add 100,000 mw of generation capacity during FY11-17, a three-fold increase. PowerGrid will be a key beneficiary of this growth,” UBS said in a note.