 "Photo: Reuters")
A key difference in the markets hitting new records in 2020, as compared to the last couple of years, has been the broad-based nature of the rally. Sectors that were completely shunned even before the battering caused by the pandemic saw a swift recovery.
Metal stocks, PSU banks, realty firms, and public sector enterprises, which were trading at attractive valuations, have seen a sharp spike in investor interest in recent months at the expense of defensive sectors like IT and health care.
A similar trend has been witnessed globally as well. The MSCI all-country value index outperformed its growth peers by more than 5 percentage points last month — the most in almost two decades.
Sunil Subramaniam, MD & CEO, Sundaram Mutual Fund, said: “What we are essentially seeing right now is a catch-up taking place for stocks with the potential for high growth. Simply put, the Street is rewarding stocks that have high growth potential and are available at fairly reasonable valuations."
One sector, which is part of the value pack, that has particularly grabbed investor interest is state-owned companies. In the past month, the Nifty PSE index has gained 20 per cent, more than doubles that of the benchmark Nifty. However, brokerage firm JM Financial advised investors to take a “stock-specific” approach when investing in these firms.
Among the listed players, they highlighted that the NTPC stock benefited from earnings delivery, even while transitioning to green energy, allaying environmental, social and governance (ESG) concerns. Besides, shares like GAIL and HPCL offer value as they trade at a discount to their global peers. SBI, they said, is a stock to play on the expected uptick in the domestic economic trajectory. Also, the stress levels at SBI are much lower than feared and incremental bad loan formation is likely to be manageable, they added.
The comeback in value stocks has started a debate on whether investors should tilt their portfolios in the favour of stocks that are priced at a discount to their historic valuations.
While there is an appeal in value stocks which should do well as worries over Covid-19 fade and there is progress on the vaccine front, experts advise investors to strike a balance among the two themes.
A combination of both is a win-win proposition, according to Naveen Kulkarni, chief investment officer, Axis Securities. “Even as the Indian equity markets trade at fresh all-time highs, they continue to offer multiple opportunities. Value plays like metals, banks, NBFCs, and others have started delivering robust returns.”
In addition to this, stocks in the small- and mid-cap space in sectors like discretionary consumption, retail, and auto have delivered returns. “The market is rewarding handsomely across both themes. Hence, a combination of the two themes would continue to give the best returns,” he added.
