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Recent correction made some stocks good buy
10 Mar 2016
After recent correction, NSE Nifty came down from 7900 to 6900 while BSE Sensex came down 26000 to 23000. These correction numbers are from Jan 2016 till Feb end 2016. After Feb end, market saw some buying at lower levels and currently markets has recovered. The question is what an investor should do in these markets. While mid-cap stocks appear a good opportunity, their valuations have not cooled as much, despite the correction in stock prices. On the other hand, experts suggest many large-cap stocks once again appear a good investment opportunity, given the sharp Sensex declines in recent weeks and reasonable valuations.
A study of 89 of these scrips (market capitalisation of Rs 10,000 crore and more) from the BSE 100 pack suggests Adani Port, State Bank of India (SBI), Glenmark Pharma, Aurobindo Pharma, Tata Motors, Maruti Suzuki and LIC Housing Finance seem attractive bets. These have fallen by 15-30 per cent since January. The valuations have also significantly reduced from their peaks in September 2015 and, barring stocks such as Glenmark Pharma, Aurobindo Pharma and Maruti Suzuki (as they continue to be among the preferred defensives, despite relatively higher valuations; it is also typical of pharmaceutical companies to command higher valuations), the rest trade at a reasonable discount to the Sensex (valued at 17.4 times the 12-months trailing price to earnings ratio). With much of the bad loan provisioning being accounted for in the December quarter, stocks such as SBI and Bank of Baroda (BoB) again feature on the list of preferred large-caps. "With NPAs (non-performing assets) likely having peaked and valuations having come off from highs, SBI and BoB look attractive at these levels.
Likewise, in the case of Glenmark Pharma and Aurobindo Pharma, Bodke feels it will not take much for sentiment to swing and a rush to hold these. Experts estimate these stocks could see about 15 per cent earnings growth in FY17. Clearly, the message is to buy select large-cap stocks, where valuations are reasonable and earnings growth visibility is good enough. And, buy in small lots by making use of stock corrections.