Confused about which stocks to buy? How about going against the conventional wisdom and turning a contrarian investor? FC Invest got some analysts to suggest a few contrarian bets.

Not long ago, in fact in March 2009, analysts and market commentators had written off the IT sector and the stocks were beaten down like there was no tomorrow. No one worth his salt was betting on the revival of the sector in the near future.

The US market, which contributes a lion’s share of IT companies’ revenues, was facing its worst economic slowdown ever since the big depression of 1930s following the financial crisis triggered by the collapse of Lehman Brothers. The rupee was appreciating against the US dollar, another negative for IT companies as they earn a huge portion of their revenues in dollars.

Bellwether Infosys Technologies was trading around Rs 1,300 apiece, perhaps the lowest level the stock has seen in recent memory. Same was the case with other leading IT stocks, such as TCS and Wipro. In hindsight, it was a great opportunity for contrarian investing. IT was trading lower than Sensex earnings.

Fast forward to the present. The huge dose of stimulus has helped most developed economies rise from the dumps. Though not full fledged, the US economy is showing signs of recovery. Indian IT companies are back on tracks and showing robust earnings, thanks to cost cutting (read layoffs) and revival of businesses.

Small wonder then the BSE IT index has given returns in excess of 160 per cent since March 2009. Infosys now trades at Rs 2,781 apiece, a return of 110 per cent since March 2009. Is there a similar contra opportunity in the Indian market at the moment?

A contrarian investor is the one who attempts to profit by investing in a manner that go against the conventional wisdom, when the consensus opinion appears to be wrong. For example, widespread pessimism about a stock can drive it so low that it would overstate the company’s risks, and understate its prospects for returning to profitability.

Identifying and purchasing such distressed stocks and selling them after the business recovers can lead to above-average gains.

In the present market, telecom, sugar and to some extent FMCG stocks can be good contrarian bets, said analysts. “Telecom can be a great contra call. A lot of the uncertainties are out of the box. It is similar to IT section crash of 2009,” said Anoop Bhaskar, head of equities at UTI Asset Management Company.

“People are underweight on telecom. Lot of people have forgotten that Bharti has a five-and-a-half per cent weightage on BSE100. I don’t see any funds that are bullish on telecom,” he adds. Bhaskar reckoned that if the doomsday scenario – cut-throat competition, lowering margins, debilitating profitability — does not occur from the June quarter, one could see a re-rating for the sector, where funds become ‘equal weight’ on telecom.

Shashank Khade, executive vice-president of Kotak Portfolio Mana-gement, agreed that telecom as a sector is a good contrarian investment opportunity. During last October-November, there were question marks on the telecom business itself as competition was intensifying.

There was this huge outgo on 3G auction and concerns over number portability, which again has to do with the competition itself. For Bharti, there were issues relating to the acquisition of Zain Telecom. All these raised concerns relating to near-term earnings.

“People don’t want to get into the sector as there was no clear earnings visibility at least in this financial year,” Khade said. “Now at least some positives are coming out. For instance, 3G auction is over and the extent of debt is now known. For Bharti, the company has completed the Zain acquisition. So most of the uncertainties that existed during October-November 2009 have been cleared off,” he pointed out.

He said slowly and steadily a consensus is emerging among analysts that FY12 will be a growth year for telecom companies. For Khade, Bharti is looking like a clear ‘buy’ at this point. “Right now, there is still a good amount of negativity in the sector and more people are bearish than those who are bullish,” he explained.

However, UTI AMC’s Bhaskar served a note of caution. “The magnitude of the upward move in telecom will be lower than the upturn that happened in IT services. IT services had actually become much more cheaper than telecom,” he said.

Another possible candidate for contra investment is sugar. From Rs 50 a kg, prices have come down to Rs 32 level after production hit 19 million tonnes in the 2009-10 season against the earlier estimate of 16 million tonnes. Share of leading sugar stocks such as Balrampur Chini, Bajaj Hinudustan, Shree Renuka Sugars and Dhampur Sugar Mills, among others, were all down around 30 per cent to 60 per cent till May-end against 8 per cent fall in the Sensex during the same period.

“Prices have corrected extensively. Now, the news from Brazil and China regarding sugar production is not great, which means the prices may firm up again,” Khade pointed out. This will lead to higher revenues for sugar companies again.

IV Subramaniam, director & CIO of Quantum Advisors, a Sebi registered Portfolio Manager, begged to differ. He felt sugar being a government-controlled business, a lot of uncertainties in the sector are related to government policies. However, he said telecom can be a good bet.

Without naming specific stocks, Subramaniam said contrarian investment opportunities exist in some banks and media stocks as well. According to Harendra Kumar, head of institutional equities and global research at Elara Capital, FMCG stocks such as HUL and ITC can be good contrarian calls. “FMCG is considered a defensive sector. But, in India, where domestic consumption is growing, FMCG should be considered a growth sector,” he said.

Another bunch of stocks on the radar of Kotak’s Khade for contrarian investment is the Gujarat state-owned companies. According to him, stocks of most companied owned by Gujarat government such as Gujarat Alkalies, Gujarat Mineral Develo-pment Corporation are trading close to book value. Gujarat State Petro-leum Corporation’s upcoming IPO will create a valuation benchmark for Gujarat government-owned stocks.

Though there are other beaten-down sectors such as metals and real estate, analysts said there could be further downside to these sectors.

For instance, in realty, interest rates are expected to go up and this will be played out to a large extent.

“My sense is you need other events to turn bullish on the real estate sector,” Khade said.