Benchmark indices rallied by about 30 percent each during the March 31-September 30 period helped by strong global liquidity and expectations of normalcy returning to life as India moved from complete lockdown to ‘unlock’ phase in the economy.
The rally was more stock-specific. There were 21 stocks that more than doubled investor wealth in these six months. These stocks have a market-cap of more than Rs 1,000 crore.
The list of multibagger stocks include Coforge, RIL, Mphasis, Vaibhav Global, Dixon Technologies, Astec Lifesciences, Affle India, Neuland Laboratories and Dixon Technologies.
“A strong rally of small & midcap is very much on the cards if backed by the sustained economic recovery. Only two stocks we cover from this list are APL Apollo Tubes, on which we have a positive view and Mphasis Ltd, on which we have Sell rating,” Arjun Mahajan Head Institutional Business at Reliance Securities told Moneycontrol.
There have been many stocks that have given significant returns in the rally post the COVID-19 crisis. Most of the stocks belong to a few sectors that are expected to do well in pandemic and also once the economy starts moving forward.
“Sectors like Agrochemicals, Chemicals, IT and Pharma have been the leaders in the rally. While the IT sector is witnessing a rerating accelerated adoption of digital technologies post the Covid-19 pandemic sector like chemicals and Pharma are witnessing greater demand for exports as global organizations are looking to diversify their supply chain out of China,” Jyoti Roy, DVP- Equity Strategist, Angel Broking Ltd told Moneycontrol.
“Companies like Dixon Technologies are beneficiaries of the thrust on make in India thus leading to import substitution. Similarly, sectors like agrochemicals are benefitting from a strong revival in the rural economy which is expected to continue for some more time,” he said.
Roy further added that despite the rally we believe that the long-term stories are still for these sectors, but we believe that bottom-up stock picking will be the key to generate alpha going forward.
Investors can stay put with companies that are COVID beneficiaries such as IT, retail, pharma, chemicals, as well as to a certain extent autos. They could look at book profits in stocks in other sectors like cement, power and equipment, suggest experts.
“If we look into these 22 stocks, the majority of these stocks are from the IT, retail, and Pharma/Chemical sector. These are some of the industries that outperformed during the pandemic,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited told Moneycontrol.
“On the other hand, one can look at booking profit from companies which are in other sectors like cement products, Power equipment’s and minerals,” he said.
Focus on Earnings:
June quarter results were not bad, and the management commentary of India Inc. in the September quarter has been encouraging which suggests that there are green shoots in the economy, and earnings will catch up.
Booking profit could be a trading call, but if investors want to remain invested then some of these stocks could give higher returns in the next 2-3 years.
“It all depends on what you hold. Many stocks also rise with the tide and some of them are multi-quarters and multi-years high earnings growth trends. Companies that have solid growth catalysts will show high EPS and good companies surprise markets with better earnings,” Pritam Deuskar, Founder of Wealthyvia.com told Moneycontrol.
“The idea is not to get surprised and invest well before they hatch bigger earnings eggs. Today's high price or PE will look cheap when earnings grow way higher than today's earnings,” he said.
Mahajan of Reliance Securities said that few indicators such as improvement in power demand, credit card bills, e-way bills, railway freight, etc. will give an indication about possible earnings recovery, prudent investors may take a while to confirm about the sustainability of this recovery.
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