Despite the run and stretched valuation, one can find value in super expensive stocks. The trick is to look beyond FY17, the year market is fixated with, earnings growth and longevity of earnings growth.
With talks of overly expensive stocks doing the rounds, Taher Badshah, senior vice president and head – equity MF at Motilal Oswal Asset Management Company explained why he still sees value and is not tempted to book out visually expensive names. Despite the run and stretched valuation in companies like Eicher Motors, Page Industries, Bosch and Bajaj Finance, Badshah says there is a lot of headroom for growth in all these names.
Badshah is part of the Motilal Oswal Asset Management Company team that reported USD 1 billion in equity assets under management (AUM) in June.
Justifying his faith, Badshah said: "If there is a stock at 50 PE and probably is still good enough for a growth of around 30-40 percent growth over the next 7-8 quarters, then we know that there could be a downside; we could probably see 5-10 percent come off. But, we know that the underlying growth is supportive of higher valuations in general." The same yardstick cannot be applied to a stock that is trading at 90 PE with 10 percent growth. "Then that is something which going a little over the top," Badshah said.
Questioning the market's fixation for FY17 while evaluating value, Manish Sonthalia, senior vice president and head of equity portfolio management services at Motilal Oswal AMC said one can look beyond the stipulated time because businesses will continue even after that. Stock prices are nothing but evaluation of earnings growth and longevity of earnings growth, he added.The Great Diwali Discount!
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First Published on Aug 7, 2015 02:49 pm