03 May 2013

HDFC Equity Fund: Invest ::Business Line


India Strategy Nifty Index Stocks: A Guide to Identifying Outliers::Morgan Stanley


Tracking what the Market is Doing with the Biggest
Stocks
This bi-monthly product tracks key 12-month drivers for
stocks in the Nifty index. We reckon these drivers include
a) sell side consensus opinion; b) institutional ownership;
c) relative valuations; d) ROE; e) consensus earnings
expectations; and f) long-term relative trailing
performance. All these indicators are plotted in a time
series so investors get a picture of the current value as
well as change over time.
Our argument is that for a 12-month view, apart from the
usual fundamental debates, investors need to assess
how bullish (or bearish) the sell side – the more bullish
the less likely the stock performs, the level of institutional
ownership – higher ownership is headwind for stocks,
relative valuations – richer valuations become an
impediment, earnings expectations – while falling
expectations are bad, if earnings growth expectations fall
too low, it could well become a support for shares and
finally ROE which is the most important fundamental

factor. Indeed, we may quickly point out that
sometimes the consensus is right so taking a
counter consensus view does not work. Yet, the
objective of this work is to pinpoint extreme
cases of mispricing.
The stand out stocks from Nifty
Based on the recent changes in institutional
ownership, change in ownership, sell-side
ratings, change in ratings, earnings revisions,
trailing performance and change in relative
valuations, it appears that IndusInd Bank, ICICI
Bank, ITC, Lupin and Maruti are the stocks
where the consensus is most bullish and
Hindustan Unilever, Tata Steel, Jindal Steel and
Power, BHEL and Tata Power is where the
consensus is most bearish