Moneycontrol Pro Panorama | The problem with safe stocks

Are stocks cheap enough to go bargain hunting?

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

As tariffs stoke deflation and economic recession risks, market advisers are veering towards companies focused on local demand.

Revenues of companies in utilities, healthcare, telecom, financial services, pharmaceuticals, consumer staples and quick commerce firms are relatively less prone to global shocks.

For example, NTPC and Power Grid Corp of India are predominantly India-focused companies and are seeing steady rise in electricity demand. The latest update from PharmaTrac shows a decent 7.5 percent sales growth in value terms in the Indian pharmaceutical market last month.

The overall economic slowdown may slow incremental sales growth of these companies. But consumers are unlikely to stop using hospitals, mobile services or discontinue insurance premiums in a big way.

In fact, India Ratings and Research projects a 13 percent growth in the general insurance market in FY26. Revenues of hospital companies are projected to grow as well. Telecom companies are seeing a tariff-hike led growth in revenues and earnings.

“Sectors with less cyclical demand/oligopolistic industry/input price tailwinds and those with potential lowering of competitive intensity should be preferred,” Nuvama Institutional Equities said in a note.

However, the challenge with these stocks is that none of them are trading at crisis or bear market valuations. Even after the recent correction most of them are trading at a premium to broader market valuations and are higher or similar to pre-COVID valuation levels.

The price to book value of NTPC and Power Grid are significantly higher than 2019 levels. Apollo Hospitals and Max Healthcare are trading at one year forward price earnings multiple of 50 times and 60 times, respectively.

That brings us to the moot question: Are stocks cheap enough to go bargain hunting? Our columnist Vijay Bhambwani has an incisive piece on the topic. Do read.

Investors should note that headwinds to global and India’s economies are intensifying amid soft corporate earnings. Markets are bracing for another quarter of subdued results. Pertinently, the focus is on future.

If trade wars hurt the global economy as feared, then FY26 earnings estimates will have to be reworked and revised lower. This can drive deeper cuts in stock prices and broader market valuations. That is the risk investors should be mindful of.

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R Sree Ram
Moneycontrol Pro