The de-rating could be quite severe, as it happened in the case of automobile stocks once the market reconciled to a ‘longish’ period of weak volumes, Kotak said
Growth stocks and the benchmark indices are still trading at higher multiples even though the economic growth has slowed down. But these stocks and indices may not be able to command the same premium if the macro conditions drag on.
Kotak Institutional Equities in a note said it is "not sure" if multiples of ‘growth’ stocks will hold up at current high levels in case the Indian economy sees a prolonged slowdown.
If the fears come true, it may have an adverse effect on Bharat Forge, Hero MotoCorp, Eicher Motors, Maruti Suzuki, HDFC Bank, IndusInd Bank, ABB, BHEL, L&T, Siemens, etc. that Kotak considers 'growth' stocks.
The research house though clarified that it will take more than just a few quarters of earnings disappointments and downgrades to dent their multiples, it also warns of a severe de-rating.
“The de-rating could be quite severe, as happened in the case of automobile stocks once the market reconciled to a ‘longish’ period of weak volumes,” Kotak said.
Table: 32 growth stocks from Kotak Equities that are trading at high multiples.
Benchmark indices have hardly reacted macro worries as the market has found comfort in accommodative monetary policy, lower domestic bond yields and hopes of an economic recovery, Kotak said.
“We are reasonably comfortable about the sustainability of the first two drivers while we have our reservations about the third one as we have highlighted over the past few months,” said the note.
The domestic brokerage firm believes that the ongoing slowdown in the economy may reflect certain structural challenges, which may last a while. The two growth drivers of the economy—private consumption and government spending—could be running out of steam.
Kotak Institutional Equities does not expect any imminent revival in private investment as the Union Budget did not provide any stimulus.Disclaimer: The views and investment tips expressed by research houses on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .