Why Sampath Reddy prefers value to growth stocks now

Jiten Parmar, believes that inflation and interest rates have started trending down in FY24, making it a more constructive year for investments than the previous year. Parmar believes that chemicals, which have corrected margins, are back on the radar due to their long-term tailwinds, and he is constructive on midcap cement due to the sector's capacity utilization, margin of safety, and expected OPM improvement.

At a time when it is not possible to find stocks that can be called “fairly valued” and forget “undervalued”, but the sentiment continues to be bullish, it is tough for retail investors to control their desire to buy stocks. The fact is that this market has been in an overvalued zone for quite some time, but as they say, liquidity and sentiment can ensure that market remains in that zone for longer than anyone expects. So, for investors, it would be wise to take exposure to stocks, where a sector the overall market size is very big or the sector has reached an inflection point where the market size will grow or they have an income stream that has an element of annuity. The reason why this strategy works is that even if the valuations are expensive at the time of buying stocks, steady growth in the industry helps in normalizing the valuations of individual stocks.

Financial sectors stocks tend to do well, where there is inflow from foreign portfolio investors, the reason, it is their preferred sector for taking exposure to the Indian market for decades as it can also act as a proxy for GDP growth. After a gap of two months, September and October, FPI have been net buyers in the month of November and till date in December. Given the fact that in the last one year there has been a sort of underperformance by financials stocks, there is high probability that we might see some of them making a come back, we take a look at stocks from this sector where one of one of valuation matrix meets the criteria for investing for long term.

The Sensex rose over 720 points to its new high of 71,234.63, whereas the broader Nifty50 index advanced 214.4 points to its record high of 21,397.10.

After remaining net sellers from April to June, FIIs have poured in Rs 7,101 crore from July till September 15, at a time when management commentary and guidance from IT majors painted a stark picture for the sector, show NSDL data.

There are some sectors where the macro structure is such that for one or the other reasons the overall growth is higher. This is not to say that growth comes without phases of slowdown, but when tailwinds come they are able to take care of all the slowdown and over a period of time, growth is much better. So, at times valuations are high, take exposure to stocks and sectors where at least there is high probability of growth ensuring that over a period of time, valuations get normalized. When we talk of market size it is not only India but in some cases global markets also. Second, look at business that is bound to grow as markets expand and every transaction brings in some money to the topline and industry structure is such that cost does not grow in the same proportion leading to higher and stable margins.

Indian markets are likely to continue their rally thanks to benign liquidity, stronger-than-expected results so far in the current quarter, and diminishing pressures on pricing. Underperforming sectors such as pharmaceuticals as well as capital goods, consumer durables and defence companies offer good opportunities. Stocks of safe bets, like ITC, Britannia and HUL, are doing well due to favourable valuations and strengthening ownership in a scenario of intense uncertainty before the election.

Stock Market today- Indian Stock Market gained and indices hit record highs for second straight day. Analysts remain positive of domestic focused stocks. PSU banks and PSU stocks in power, energy, defence, cap goods, NBFCs, as- well-as sectors as real estate and Cement are where experts see value.

Nimesh Chandan, CIO of Bajaj Finserv Asset Management, believes that the markets have reached fair and higher than reasonable valuations. A change in approach is necessary, and investors should look for bargains in undervalued areas. The paint industry is experiencing an influx of new players, which may impact existing players' market share and valuations.

Deviations in actual conditions from expectations of the consensus tend to rattle markets, resulting in sharp moves up and down. This explains the current volatility in global and domestic markets.