Despite the sharp correction, Nifty is still expensive compared to long term average amid faltering earnings growth. “We believe that the Nifty is still expensive at 18.2x FY20E earnings,” Motilal Oswal said in a report
The market has tanked since the budget on July 5. Investors have lost about Rs 12 lakh crore in terms of market capitalisation on the BSE since then. The freefall has not spared any segment of the market and has hurt large, mid and smallcap segments equally.
But this has not deterred domestic and foreign institutional investors from raising stakes in their favourite stocks. There are 16 stocks in which both, mutual fund managers and foreign investors, have raised their stakes consistently for the last four quarters.
They include Asian Paints, HDFC, Capacite Infra, Bajaj Consumers, NHPC, Tejas Networks, among others.
“Increase in MF holdings in most of the stocks is a result of good quarterly performance, prudent management, promoter track record, market leadership in their respective industries and sound long-term growth prospects,” Ajit Mishra Vice President, Research, Religare Broking Ltd told Moneycontrol.
“There may be some consolidation in the near-term given stretched market valuations and overall weak domestic sentiments. Going forward, sustenance of strong earnings and macros like inflation trajectory, pick up in capex/investment cycle will be key triggers for further MF flows into these stocks,” he said.
Table: 16 stocks in which both FIIs and MFs raised their stake in the last four quarters. Data as of June quarter for reference.
Nifty and the broader market indices have fallen substantially from the recent highs. Nifty has plunged 9 percent from its record high of 12,103 while the broader market indices are down over 10 percent from their respective record highs.
Despite the sharp correction, Nifty is still expensive compared to long term average amid faltering earnings growth. “We believe that the Nifty is still expensive at 18.2x FY20E earnings,” Motilal Oswal said in a report.
“Valuations of Indian equities are near their long-period averages. The Nifty trades at a 12-month forward P/E of 18.2x, at just 1 percent premium to its long-period average of 17.9x. Nifty’s P/B of 2.6x is also at its historical average,” it said.
The report further added that at the current trailing P/E of 21.7x and forward P/E of 18.2x, Motilal Oswal sees limited triggers for further re-rating, unless accompanied by a material surprise in earnings.
Other parameters to track
Umesh Mehta, Head of Research, SAMCO Securities recommend investors not to blindly invest in companies that are picked up by mutual funds.
“In fact, that can be a starting point for research. Investors must have confidence in the management of the company and go through its fundamentals before picking a stock,” he said.
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