Time to move away from expensive stocks: Analysts

Mumbai: Despite market indices Sensex and Nifty-50 at an all-time high, there are several blue chip stocks and sectors that are trading at a discount to their historical averages and only now they are beginning to see some pull back.

So far, the market rally has centred on some heavy weights stocks and benchmark indices are not reflecting the health of the economy as expected.

Select stocks from financials (HDFC Bank, HDFC, ICICI Bank, Kotak Mahindra Bank, SBI, Bajaj Finance), IT (TCS, Infosys, HCL Technologies), consumer focused (Hindustan Unilever, Titan Industries), select auto names (Maruti, Eicher Motors) among others have been powering the rally for long.

There are several stocks in the engineering & infrastructure space (L&T), PSUs (ONGC, NTPC, Coal India, BHEL), cyclicals like metals (Tata Steel, JSW Steel, Hindalco) and cement, pharma (Sun Pharma), telecom stocks (Bharti Airtel, Vodafone Idea) which have not been part of the rally.

But analysts say it’s time to move away from expensive stocks.

Sunil Sharma, CIO, Sanctum Wealth Management said, “As we head into 2020, markets and the economy have diverged somewhat meaningfully. Avoiding the most expensive parts of the market and reducing beta risk in portfolios is a prudent choice in the current environment, post a fairly strong rally, in a weak economic environment with high valuations, and a stagnant consumer.  We advise gradually reducing exposure to high valuation, low growth equities.”

Among the financials besides private banks off late life and general insurance companies (SBI Life Insurance, HDFC Life Insurance, ICICI Prudential Life Insurance, ICICI Lombard General Insurance) and AMCs (HDFC AMC, Reliance Nippon AMC) have shown big investor appetite and have become the darlings of the market participants.    

Sector-wise, Telecom and Metal stocks rallied on Monday, in anticipation of their improving outlook.  Bharti Airtel (7.20 per cent), Bharti Infratel (7.76 per cent), Reliance Industries (0.92 per cent), Jindal Steel (7.24 per cent), Tata Steel (4.99 per cent), Hindalco (4.81 per cent), JSW Steel (3.58 per cent) and Vedanta (2.74 per cent).

For the telecom stocks recent Supreme Court judgment on pending dues was a wake up call for the telecom players.

The government announcing two-year moratorium on spectrum charges and other levies as well also provides some leg room for the heavily indebted players like Bharti Airtel and Vodafone Idea to make some headway in meeting government dues demand within the given time frame.

Metal stocks rallied on news of US-China trade deal getting through by the end of the year.

Cement stocks have been also underperforming barring a few big names like Ultratech, Shree Cement as the sector has seen prolonged monsoon period this year which has led to lower demand but demand revival is on the cards.

“Cement industry volumes likely declined in mid-single digit year on year in October 2019 impacted by extended monsoon, festive season and a sharp decline in South region volumes on a high base. Demand in Delhi turned weak in

November 2019 due to the construction ban (as a pollution control measure) till  November 25. However, demand across most regions improved meaningfully month on month as construction activities resumes,” a report by ICICI Securities said.

PSU stocks are next to watch out for as the busy divestment season kicks off and also their dividend yield potential is on display with government requiring their profit sharing to meet the fiscal deficit target.

Similarly in the broader market, the mid-cap and small-cap stocks have not rallied, rather seen carnage of shorts, which may now get corrected as rich valuations of select large caps in the financials and consumer focused stocks segment may lead to profit taking now over a period of time and investors will start looking at beaten down mid-cap and small-caps as better options.