Analysts advise investors to stay with stocks which are witnessing momentum rather than trying to catch a falling knife
The S&P BSE Sensex remained volatile so far in April, gaining just about 2 percent, but there were plenty of stocks which hogged the limelight.
The S&P BSE Sensex is still 7 percent away from its 52-week high of 36,443 — recorded back in the month of January — but there are nearly 100 stocks in the S&P BSE 500 index which rose to fresh 52-week high so far in the month of April.
After a disappointing March, bulls managed to crawl back to D-Street but the momentum still remains muted. Higher crude oil prices, global uncertainty, including trade war fears and US military action against Syria, and banking woes kept investors on the sidelines.
Analysts advise investors to stay with stocks which are witnessing momentum rather than trying to catch a falling knife. Stocks which rose to their fresh 52-week high include names like Kotak Mahindra Bank, IndusInd Bank, Avenue Supermarts, Titan, Nestle, Bandhan Bank, HDFC Standard Life, Apollo Tyres, Jubilant FoodWorks, Godrej Agrovet, and ICICI Securities, among others.
“Stocks hitting fresh highs, generally indicates structural/fundamental tailwinds which have or might result in positive earnings momentum going ahead. Mr. Market typically tend to discount this pretty efficiently in the short term as can be reflected in the rise of prices of such stocks,” Prasanna Pathak, Fund Manager, Taurus Mutual Fund told Moneycontrol.
“Hence, one needs to keep a tab on the extent of rise, valuations, earnings visibility and sustainability of earnings momentum before investing in such cases,” he said.
The smallcap space, which includes stocks with a market cap of less than Rs 1,000 crore, have names like Ester Industries, Kellton Tech, Nelco, Singer India, Milkfood, Dolat Investments, Birla Cable, LKP Finance, Jyoti, Punjab Alkalies & Chemicals, and Karda Construction.
Many small and midcap stocks are witnessing upward momentum, thanks to optimism around March quarter results. The good news is that the micros have turned positive with clear signs of healthy growth in corporate earnings in Q3 results and the trend is likely to get carried forward in Q4.
“The market participants are eagerly awaiting Q4 and full year FY18 results to further reaffirm the improving trend in earnings growth in India. The consensus earnings estimates are factoring a 20 percent plus annual growth rate in Sensex earnings over FY18 to FY20,” Sharekhan said in a report.
Though the revision in earnings of some banks and another adjustment could lead to some downward revision in estimates going forward, the healthy growth in earnings would definitely support equity markets, it said.
More importantly, from an investors' perspective, the year ahead would be more of a stock pickers' market rather than an all-out rally as seen in 2017. Hence, focus on quality is very important even for stocks which are hitting fresh 52-week highs.
“One thing which we have to accept is that the stocks which are trading near their 52-week highs are backed by some logical rationale in a scenario when the overall mood of the market is muted,” Soumen Chatterjee, HoR, Guiness Securities told Moneycontrol.
“Reasons behind these stocks to trade with so much optimism may be due to better quarterly earnings, fund-based buying or changing Industry dynamics,” he said.
Chatterjee further added that investors should wait for time correction or consolidation in these stocks to come, instead of buying them in momentum at escalated prices.