Avoid ‘narrative’ stocks, focus on fundamentals, says Kotak Institutional post Lok Sabha election results
Read here: Dabur India, Godrej Consumer Products & others hit 52 week high today ; Do you own any?In the near term, the brokerage expects a reset in the market’s hitherto cavalier investment stance toward ‘narrative’ stocks."We have struggled with the implied growth and profitability assumptions embedded in the market cap. of several ‘narrative’ stocks (capital goods, electric utilities and PSUs).
We find the risk-reward unfavorable for these companies, notwithstanding the sharp decline in stock prices on election day. Most of these ‘narrative’ stocks have risen sharply over the past 12-15 months.
They (1) offer a large downside to their fundamental fair values and (2) trade at rich-to-bubble valuations. Our reverse-valuation exercises show unrealistic volume and profitability assumptions in most cases," it explained.Commenting on the election results, the brokerage said that the NDA’s performance has been significantly weaker than estimates of the exit polls and that of 2019.
The weaker-than-expected show of the BJP versus 2019 and versus exit polls reflects weaker-than-expected performance in its strongholds of North and West India, even as it made gains in East and South India and in a few concurrent state elections, it noted. However, despite the weak results, it pointed out that the government’s economic agenda is not likely to change much.The brokerage expects the ‘new’ government to continue with its investment-led economic agenda, but it may tweak its priorities to support consumption and employment.
"We will get a better sense of the same over the next few weeks and in the FY2025 final budget. The government may continue with its focus on (1) affordable healthcare and housing, (2) energy transition, (3)
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