NEW DELHI: With the Sensex rallying over 4,700 points from its 52-week low hit last month, growth stocks have started outperforming in the ongoing rebound on Dalal Street. Market data shows that in the last one-month and three-month period, growth as a theme has recovered rapidly after suffering the most in the recent correction.
Typically, whenever the market is going through a rough patch investors prefer stocks trading below their intrinsic value.
Arun Malhotra of CapGrow Capital Advisors says valuations have become reasonable as both time and price correction has happened. Stocks like
and in the financial sector are back to price levels that existed before Covid, while the profits have risen by more than 40 per cent.
“Lots of largecap names exhibit this phenomenon and have become cheaper both in absolute terms due to rising profitability and constant price levels, as well as cheaper in relative terms to the broader market,” he told ETMarkets.
For Alok Agarwal, Portfolio Manager, Alchemy Capital, the mantra is GARP – growth at a reasonable price.
“Focus on growth is important, but growth at any price can be injurious to portfolio health. It’s critical to weigh the growth opportunity along with valuation, plus the capital efficiency (i.e. ability to earn a higher return on the same capital) and balance sheet strength (debt/equity within reasonable limits),” he said.
However, in the last two-year period, the value theme has been the most dominating one in the market.
Pawan Bharaddia, co-founder and CIO of Equitree Capital, says higher interest rates generally lead to de-rating of PE which in turn sparks selloff in high PE stocks.
“For the last couple of years, growth companies have enjoyed high PE and the recent sell-off in some of these growth and new-age tech companies only testifies this phenomenon,” he said, adding that value plays are more likely to do better going forward.
Axis Securities believes that select value stocks from metals, commodity, utility, and cement sectors are well-placed to deliver superior performance, especially considering their recent correction. “Though value stocks in the BFSI space have underperformed other themes for the last couple of months, they are expected to outperform moving forward,” said the domestic brokerage in a recent report.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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