As India’s market capitalization as a percentage of GDP reached a new high in anticipation of a robust profit comeback, two out of every three sectors are now trading above historical averages.
However, analysts warn that future development will not be uniform and that investors should take a bottom-up strategy to invest.
Specialty chemicals, infrastructure, consumer durables, real estate, logistics, and media were among the sectors trading at significant premiums to their historical averages on a PE basis.
The technology sector now has a P/E ratio of 27.5, which is 52% more than its historical average of 18.1 times. It’s possible that this is one of the reasons why IT stocks have been under selling pressure recently.
The oil and gas sector has a P/B of 1.6 times, which is 12% more than the historical average of 1.4 times. This sector has a P/E ratio of 12.3, which is 6% higher than historical averages. Brent prices averaged $83.8 a barrel in January, according to brokerage Motilal Oswal, as fears of a new round of lockdowns faded, with cases in the US dropping drastically in recent weeks.
The consumer sector’s P/E of 41.6 times at the end of January was likewise 10% higher than the 10-year average of 37.9 times. FMCG demand decreased in January after a robust run-up following the festival season. According to Motilal Oswal, an increase in Covid cases across the country resulted in the restoration of restrictions and curfews, leading to a decrease in consumer mobility and out-of-home use.
Analysts believe that now is the time to focus on fundamentals and look for companies that have healthy, steady growth as well as high-quality cash flows and returns on investment.
Axis Securities loves ICICI Bank, Bajaj Auto, Tech Mahindra, Maruti Suzuki India, SBI, Hindalco Industries, Bharti Airtel, Federal Bank, and Varun Beverages, according to its February note.
Large companies including ICICI Bank, SBI, L&T, Axis Bank, Reliance Industries, Bharti Airtel, Infosys, Hindustan Unilever, Titan, and Hindalco are favorites of Motilal Oswal Securities.
Ashok Leyland, Oberoi Realty, Indian Hotels, Devyani International, Zensar Tech, Indigo Paints, Gujarat Gas, Orient Electric, and VRL Logistics are among the brokerage’s midcap and small-cap picks.
Emkay Global is bullish on Eicher Motors, ICICI Bank, Infosys, Maruti, and SBI among large caps, but bearish on PNB. Small and midcap selections include ABFRL, Bharat Forge, Birlasoft, Sunteck Realty, Varun Beverages, and Westlife Development.
Julius Baer said it kept a positive outlook on the stock market and that India is still a ‘Buy the Dips’ rather than a ‘Sell the Rallys’ market.
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