Data showed market capitalisation of the healthcare sector has surged 56 per cent since March this year, while real estate and capital goods sectors have seen a 21-24 per cent surge in their market values during the period. Consumer staples and IT stocks have also seen up to 27 per cent rise in market values, Kotak Institutional Equities said in a note.
The brokerage said a positive change in expectations could imply either higher growth in volumes and higher market size of the sectors over the next few years (versus earlier expectations), which is a possibility. It can also be due to the expectations of a rise in the market share of each of the players, which is not possible, it said.
“The real economy and total addressable market will grow at its own pace. We can only hope it grows fast enough to justify current bloated expectations,” the brokerage said.
Kotak said the market clearly likes the investment cycle theme, as suggested by the sharp jump in market capitalisations of most stocks in the past few months. But the challenge is to appreciate the market opportunity over the next decade or so, given a very subdued investment cycle of the past decade. “India’s manufacturing and residential real estate sectors could grow rapidly if our thesis is correct. It may be best to stay invested,” it said.
Carborundum Universal, Bharat Electronics, Havells India, Schaeffler India and SKF India have led the gainers at the BSE Capital Goods, jumping 30-72 per cent in the last six months. ABB gained 26 per cent.
Among capital goods names, Emkay Global likes L&T, KEC International and Kalpataru Power, considering their superior execution capabilities, existing order backlog and relative valuations. All the three stocks have underperformed Sensex’s 14 per cent return in the last six months. L&T was up 10 per cent, Kalpataru 5 per cent and KEC down 5 per cent.
In BSE Realty, Sobha,
, Prestige Estates Projects, Oberoi Realty, Brigade Enterprises and Indiabulls Real Estate jumped 30-76 per cent in the last six months.
Brokerages are largely positive on Mumbai-based realtors. Edelweiss has advised investors to play the real estate theme by building up exposure to market leaders in Mumbai — be it Macrotech Developers, the leader in Mumbai realty, or Phoenix Mills, the leader in retail realty. Phoenix Mills has risen just 9 per cent in the past six months, while Macrotech has been a multibagger since its listing on April 20.
Kotak said it was not sure if the market opportunity has expanded dramatically for consumer staples and IT services sectors.
“Our growth estimates are not very different from what we had a year or two years ago. The market is excited by the change in management in certain cases; stock prices are pricing in much higher growth rates and/or successful exploitation of ‘adjacencies’. It is certainly possible given the pedigree of the management and the companies. However, their higher share and/or success in new areas, if at all, will presumably come at the expense of others,” Kotak said.
Small and midcap IT stocks such as Mastek, Mindtree,
and KPIT Tech have zoomed 100-140 per cent in the last six months. The top 5 IT biggies — TCS, Infosys, Wipro, HCL Tech and Tech Mahindra — have gained 20-60 per cent during the period.
Emkay likes stocks such as Infosys, HCL Tech, Tech Mahindra and Persistent Systems.
Consumer companies are seeing inflationary pressure. But Nirmal Bang Institutional Equities said price hikes, normalised revenues and some sustained cost savings should drive operating margin expansion for the full financial year.
Industries, Bajaj Consumer Care and Varun Beverages are among B&K Securities’ top picks.
Godrej Consumer Products and Varun Beverages have gained 40 per cent and 63 per cent, respectively. Britannia, HUL and Marico have risen 18-40 per cent, while ITC has remained flat.
Kotak said the large increase in the market capitalisation of healthcare services companies reflects the market’s expectations of a long runway of growth, especially given the large size of the markets and the large share of the unorganised sector. “The real challenge is to figure out the extent of future opportunity that is already priced in the current stock prices. We are believers of this theme but are struggling with the implied market opportunity in the stock prices,” it said.
Stocks in the BSE Healthcare have risen up to 300 per cent in the last six months. About 37 healthcare stocks have jumped over 20 per cent in six this period compared with a 14 per cent rise in the BSE Sensex.