Last two years have seen a baffling mix of global and local factors playing spoilsport in the markets, making the stock picking an improbable task if not an impossible one. The emerging complex scenario has resulted in a valuation polarisation in the market. At the top level, there are stocks with a high quality earnings profile, but fully captured by their valuations and hence run the risk of a sharp de-rating on the slightest negative surprise. Similarly, at the bottom rung, there are companies whose valuations may look cheap, but lingering policy obstacles and lack of an earnings trigger could keep their valuations depressed for the foreseeable future. Given the unfavorable risk-reward metric, we would be guarded against both these extremes.
��
However, all is not lost for savvy investors. Indeed there are companies in the middle rung with competent business models, but markets have been overly hostile in discounting these stories. They have been de-rated either on account of recent upheavals in the sector (like telecom) or due to the cyclical nature of their earnings (banks and media). Their business models may get influenced by policy decisions to an extent, but by no means, they are dependent on it, as perceived by the broader market. In short, they have been derided with a “guilty until proven innocent” approach. We see this set of stocks mispriced relative to the value they carry and it is precisely within this region that we zero in, looking for turnaround stories. Some of the names in this space include Reliance Industries, Bharti Airtel and Zee Entertainment.
Regards,
No comments:
Post a Comment