The best performing stock in the Nifty pack is Tata Motors, up 73 per cent easily beating Nifty’s 4 per cent gain by a wide margin. The worst stock is Asian Paints, which has lost 18 per cent. The top losers are Asian Paints, Nestle, Titan, Hindustan Unilever, Britannia, Dr Reddy’s, Divi’s, Maruti, Kotak and Britannia. Most of them belong to the safe haven category, like FMCG and pharma, which are so-called defensives.
Maruti and Kotak are exceptions, but Kotak also has the lustre of an FMCG stock.
Other losers in the Nifty pack are either technology or priced-to-perfection private sector NBFCs, that include Bajaj Finance and HDFC. One notable exception is SBI Life, which is relatively under-valued and belongs to the value stock category. The other noticeable commonality is that the losing counters all command high PEs. The average valuation of top five gainers at the start of the year was 16-18 times FY22 P/E vs more than 60 times for the top five losers.
Let us look at the winners. The biggest gainer, Tata Motors, is followed by Hindalco and SBI, which rose 43% and 40%, respectively. Among the top 10 gainers, we have three PSUs, two banks and one stocks each from chemicals, commodities, infrastructure and automobiles. The two banks are IndusInd and Axis; both of which got rocked last year over asset quality issues. PSU stocks have made a comeback, following some noise on divestment. Clearly, the market believes recovery is on the anvil.
This happens in any bull market. ‘Growth at any price’ gets replaced by ‘growth at reasonable price’. The economic revival will boost prospects of all companies and, hence, the churn. I don’t think we have entered the BAAP of all bull markets; an acronym for ‘buy at any price’.
It is interesting to note that such a risk-on performance is emerging despite an extremely sharp rise in bond yields, a spike in VIX and commodity price inflation. This indicates that the market is trying to find new winners against the compounders of last 10 years.
Among the beaten down names, our research has picked Divi’s (20%+ CAGR EPS visibility) and SBI Life (7%+ return CAGR in 3.5 years since the IPO despite 20%+ profit CAGR). These two names might surprise us soon.