These Stocks Are The Most Expensive Bets In India
The Indian stock market continues to trade higher than its historical average even after benchmark indices gave up half the tax-bonanza-fuelled gains.
Nifty 50 trades at a 16 percent premium to its 10-year average price-to-earnings multiple, according to Bloomberg data. That has been driven by heavyweights as investors piled onto large caps and safer bets among financials. The polarisation means valuations of select consumer-focused and some of the financial stocks remain higher than the long-term average.
Analysts don’t see much upside on consumer stocks but expect most of the financials to return gains in the next 12 months.
Here are India’s most expensive stocks.
- Tracked by more than 10 analysts.
- Valuations measured by 12-month forward price-to-earnings multiple.
- Financials listed separately based on their price-to-book value.
Shares of the operator of D-Mart supermarket chain have surged more than 40 percent in the last one year, making it the most expensive stock. The rally can be attributable to the 30-percent-plus revenue growth and 19 percent net profit growth in the last one year, and a small public float.
Of the total 22 analysts tracking the company, nine suggest a ‘Buy’.
Highest-ever new store additions, strong operating metrics and a large fund-raise that came mostly from the parent kept valuations elevated for the retail arm of the Tata Group. Reduced losses in Star Bazaar aided by rationalising different formats and growth in private labels kept the street bullish.
Despite high valuations, 10 out of the 13 analysts tracking the company have a ‘Buy’ rating, according to Bloomberg data.
HDFC Standard Life
Strong performance of home loan insurance business despite macro headwinds, improved new business margins driven by a higher share of protection and annuity businesses, coupled with continued demand for its Sanchay Plus investment-cum-insurance drove the insurer’s shares 57 percent higher in the last one year.
18 of the 29 analysts tracking the company still suggest a ‘Buy’.
Faster growth than peers in the first half of 2019 has led to a 44 percent growth in the share prices of Maggi noodles and Nescafe instant coffee maker, keeping valuations elevated. Volume growth was aided by a nuanced distribution strategy, more product launches, aggressive advertising spends and fresh capital expenditure.
Nearly half of the 36 analysts tracking the company have a ‘Buy’.
With returns of more than 53 percent, it’s the highest gainer in the Nifty Realty Index. The gains came on the back of consolidation among the cash starved small- and medium-sized developers, growth in joint development portfolio and strong parentage.
Nearly half of the 16 analysts tracking the company rate it a ‘Buy’.
India’s largest branded jewellery maker trades at premium valuations aided by strong growth in a difficult macro environment, increasing market share due to a shift to the organised sector, an expected rise in dividend payout and improvement in return ratios after the cut in corporate tax rate.
Analysts have yet to factor in its second-quarter update with the company highlighting sharp fall in sales growth due to higher gold prices.
Sixty-two percent of the 34 analysts tracking the company recommend a ‘Buy’.
Shares of Kolkata-based paintmaker have gained over 55 percent in the last one year, aided by consistent double-digit volume growth for the last nine quarters, positive earnings outlook due to higher share of decorative paints to its revenue and a margin boost from benign crude oil prices.
The stock has only one ‘Sell’ call, with the remaining 21 analysts either suggesting a ‘Buy’ or ‘Hold’.
India’s largest paintmaker trades at a premium because of a double-digit volume growth in decorative business for six successive quarters, a robust distribution network of over 55,000 dealers across the country and better margins aided by soft oil prices and premiumisation.
55 percent of 38 analysts tracking the company have a ‘Buy’.
Aditya Birla Fashion
It has the highest potential upside of 16 percent, according to average of estimates tracked by Bloomberg, among the 10 most expensive stocks excluding financials. Eighteen of the 19 analysts tracking the company have a ‘Buy’ rating on it. Improving store maturity, operating leverage benefits and aggressive expansion have kept analysts bullish.
Investors in the maker of Fevicol adhesive have been rewarded as its shares surged more than 41 percent in the last year. That came on the back of sustained volume growth in its consumer segment despite a challenging domestic environment. A sharp fall in prices of key raw materials like Vinyl Acetate Monomers drove margins to a six-quarter high in the three months ended June.
Seven of the 23 analysts tracking the company suggest a ‘Buy’.
Most Expensive Financial Stocks
Banks and other financial institutions in India have been caught in a turmoil as asset quality deteriorated and shock defaults by IL&FS led to liquidity shortage and domestic slowdown has hurt demand for credit. Yet, some of these command a premium.
Assets under management have been growing at 38-40 percent in the last four quarters and the company is betting on analytics-based consumer financing. It aims to grow at 25-27 percent in medium term
The bank’s strong deposit profile remains the key differentiator among other small finance banks. Acquisition of mortgage lender Gruh Finance Ltd. has made it the “best in class affordable housing finance company”, according to Emkay Securities.
AU Small Finance Bank
Investors bet on this company as its entire book is secured. Nomura expects its assets to grow at an annualised rate of 35 percent through 2018-19 to 2021-22, improving its return on assets from 1.2 percent to 1.6 percent.
Kotak Mahindra Bank, HDFC Bank
The two lenders have so far been able to maintain asset quality and growth rates when their public and private peers have been weighed down by bad loans.
City Union Bank
It has consistently shown healthy growth and maintained asset quality, ICICI Direct said. The brokerage sees the lender well placed among other regional peers, with comfortable capital position.
Analysts expect the lender to overcome concerns over asset quality concerns and management transition.
HDFC, Can Fin Homes
While most housing finance companies are struggling with deteriorating asset quality, HDFC and Can Fin Homes remain unscathed due to their little exposure to developer financing.
Focus on used vehicles and small-ticket loans is expected to help the non-bank lender maintain a healthy growth in the coming quarters, according to Centrum Broking. Yields are expected to improve by 80-90 basis points from the second quarter, aiding margins. Effective cost management and better recoveries could help improve return ratios by FY21.
(The reasons for being the most expensive stocks have been compiled from research reports of Morgan Stanley, HSBC, Kotak Securities, Emkay Securities, SBICAP, HDFC Securities, Antique Broking, Nomura, Centrum Broking and ICICI Direct, among others.)