Mumbai: The market has been ruthless to investors across the board in 2018, with around 70-80% of listed shares losing value. Yet, valuations of most stocks are still high, except in specific sectors and stocks.
While 23 stocks that make up close to 77% of BSE Sensex’s 30 shares lost value since the beginning of the year, 84 out of the 100 stocks in BSE 100 index declined in this period. Meanwhile, the broad-based BSE 500 index saw 409 stocks or 81.8% declining in the same period. (Tata Motors Ltd’s differential voting rights shares were excluded as they declined in tandem with the main scrip.)
“It is not surprising. The erosion has happened across the board, irrespective of market value. Valuations were stretched across market caps," said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.
While the Sensex lost 3.33% year to date, BSE 100 index and BSE 500 index shed 5.11% and 6.01%, respectively.
Eighty-three stocks or 82.10% of 101 BSE mid-cap stocks, and 743 or 86.10% of 863 BSE small-cap stocks too have declined, year to date.
“There is selective value in specific stocks, but broad value is missing. On paper, SOE (state-owned enterprises) banks may look cheap, but we don’t think so yet, looking at the bigger problems faced by the sector," added Chhaochharia.
Sensex trades at 17.43 times 1-year forward earnings, at a premium of 10.91% over its 5-year average of 15.72 times, and 16.54% over its 10-year average of 14.96 times.
While analysts expect earnings growth to turn around, it has been difficult to pin down a timeline with certainty for the same. With uncertainty still looming, the prices look stretched.
JBF Industries Ltd lost the most in BSE 500, down 49.22% in 2018, Punjab National Bank (PNB), the next in line, fell 43.76% in 2018 after the surfacing of a Rs12,636 crore scam involving fraudulent issue of letters of undertaking (LoUs) and letters of credit (LCs) towards companies owned by jeweller Nirav Modi and his uncle Mehul Choksi.
“The PNB fraud has forced bank stocks to come down, and that forced funds to offload large-cap stocks to make up for the sharp decline in banking pack," said Deven Choksey, group managing director, KR Choksey Investment Managers Pvt. Ltd.
He added that due to the sharp drop in the value of mid-caps held by institutional investors, they ended up making up for the loss by selling large-caps. “This, in turn pulled the large caps down too," said Choksey.
Choksey, however, was positive on the overall outlook of the market.
“The fundamentals remain strong, even as some macro headwinds are there. However, we believe corporate earnings outlook is stronger than before, and there are stocks that look attractive," said Choksey.
“Commercial vehicle space, electrical goods & equipment makers, and housing finance, insurance look convincing at this point after the sell-off. There are select IT and pharma stocks that have become attractive too," added Choksey.