Hitch a Ride on Local Investment Bus
Stocks of companies from infra, oil & gas, banking sectors on the up, but still have cheaper valuations
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.