The Dark Horses & Valuation

The dark horses

Among other sectors, metals and infrastructure may emerge as dark horses. “With steel and aluminium prices rising, the integrated players will perform well. IT, pharma and chemicals will continuing doing well, but infrastructure and metal names will surely give decent returns in 2021,” says Jain.

Even as the BSE Midcap index is hovering around its all-time high, only a handful of large-midcap stocks have hit their all-time highs. Besides, the BSE Smallcap index is still about 1000-point away from its all-time high. Suggesting that we could still be in the early stage of the bull market, Jain says smallcaps are always the last to enter the market rally. “Mid and smallcap space is a large universe. You can’t paint them with one brush. It’s a matter of stock-picking.

How to read into valuations

The valuation debate is getting hotter. The Nifty50 quoted its all-time high price-to-earnings (P/E) multiple of 40x on Tuesday as it made an intra-day high of 14,590.65. The country’s market capitalisation-to-GDP ratio has hit a high of 98 per cent for India. The stock market is deemed expensive when the ratio goes past the 100-mark.

T hat unless you are a savvy investor, you should stick to mutual funds in the existing market scenario. “If you have to invest in stocks directly, don’t look at valuations alone. Analyse stocks in terms of management quality, position of the company in the sector and its ability to defend its earnings in the future. So, you have to take a call on future growth vis a vis how valuations look. You cannot look into rear mirror to say how future will look.”

New-age IPOs

There’s a flurry of new-age firms listed in the US, but the Indian stock market lacks such firms despite over 20 unicorns in the country. “In 2021 itself, we will see internet firms like Zomato, Paytm, and Policybazaar to come up with IPOs,”