Hitch a Ride on Lo­cal In­vest­ment Bus

Stocks of com­pa­nies from in­fra, oil & gas, bank­ing sec­tors on the up, but still have cheaper val­u­a­tions

The Economic Times - - Markets - RA­JESH MASCARENHAS

Big in­vestors in the stock mar­kets have had an in­kling of the BJP’s land­slide vic­tory, go­ing by the spec­tac­u­lar run of real es­tate, power, ce­ment, bank­ing, cap­i­tal goods, in­fra and oil & gas com­pa­nies in the past one week. While ET Power in­dex surged 12% this week, ET Ce­ment and ET Oil & Gas in­dices jumped nearly 10% against the Sen­sex gain of 5% as for­eign in­sti­tu­tional in­vestors and high net worth in­di­vid­u­als shifted money from de­fen­sive stocks to these sec­tors on ex­pec­ta­tions of a de­ci­sive and re­formist govern­ment com­ing to power. ET Bank in­dex rose nearly 7% in the past one week. “De­fen­sives like pharma, IT and FMCG took a back seat, while the bal­ance shifted to­wards sec­tors linked to do­mes­tic in­vest­ment and in­fra­struc­ture,” said Anup Bagchi, man­ag­ing di­rec­tor and CEO at ICICI Se­cu­ri­ties. An­a­lysts said in­vestors shifted their fo­cus away from near-term earn­ings to do­mes­tic in­vest­ment, in­fra­struc­ture and re­cov­ery cy­cle prospects. ET Pharma lost 2.5% in past one week, while ET Hos­pi­tal­ity and In­fotech, too, un­per­formed the broader mar­ket. Ce­ment and in­fra­struc­ture com­pa­nies ral­lied on hopes that fresh bigticket or­ders from the new govern­ment to boost in­fra­struc­ture de­vel­op­ment will im­prove the rev­enue pipe­line for these com­pa­nies. I nvestors bet big on state - owned bank­ing stocks as they ex­pect the Naren­dra Modi govern­ment to re­vive PSU banks with cap­i­tal in­fu­sion and eco­nomic growth. Stocks of PFC, Ca­nara and Union Bank soared over 25% in the past one week, while UCO Bank, In­di­a­b­ulls Real Es­tate, JP As­so­ciates and Jaypee In­fra rose 20-25%. Re­liance In­dus­tries, In­dia’s sec­ond­largest com­pany in terms of mar­ket cap­i­tal­i­sa­tion, was the top con­trib­u­tor to the Sen­sex’s 1,128 points rally in the past one week. RIL, which grossly un­der­per­formed the broader mar­ket for the last five years, gained 8% to close at ` 1,080.50 on Fri­day. ONGC, In­dia’s largest oil and gas ex­plorer, con­trib­uted 118 points to the Sen­sex rally. De­spite their sharp rise in prices, bro­kers pointed out that these stocks are still cheaper than their peak val­u­a­tions. “Though some of the sec­tors are ex­pen­sive, many of them, in­clud­ing cycli­cals, bank­ing, in­dus­trial and con­sumer dis­cre­tions, are way off from their peak and these are the sec­tors to rally go­ing for­ward,” said Nir­mal Jain, chair­man and man­ag­ing di­rec­tor at IIFL. For out­sized re­turns, an­a­lysts said, in­vestor should buy qual­ity stocks among cycli­cals at a rea­son­able price. “Low qual­ity stocks never deliver in In­dia and the path to gen­er­at­ing strong re­turns even in a re­cov­er­ing econ­omy lies in in­vest­ing in rel­a­tively well­run com­pa­nies which are avail­able at rea­son­able prices,” said Sau­rabh Mukher­jea, CEO in­sti­tu­tional eq­ui­ties, Am­bit Cap­i­tal.

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