Valuation comfort in capital goods stocks? Stay invested & wait for dips: Renu Baid Pugalia
Renu Baid Pugalia, V-P-Research, IIFL Institutional Equities, says coming to valuations in capital goods stocks, on a relative scale Larsen & Toubro has disappointed on earnings and where the relative outlook in terms of margins was soft. From an earnings perspective, ABB saw almost 10% upgrade in earnings, Siemens saw 15% to 20% upgrade in earnings. Pugalia says that valuation is a pretty tough rope to walk for investors. The best strategy probably is to stay invested and hold on to these names, wait for opportunities for dips to add more.
Pugalia does not see any deep value names, but probably some of the government owned companies, like Bharat Electronics on a relative scale given the kind of earnings growth momentum and visibility that they have, look much more attractive on valuations, trading at sub-30 times one year forward.
There are two spaces which stood out, one was the FMCG space. Everybody was giving very strong commentary and the stocks were running 8-10%. The next sector which came close on performance and commentary was capital goods. But out of all these four stocks, the big ones, the big four, where are you finding comfort in valuations because valuations rarely come in a juicy zone. How are you negotiating with that?
Renu Baid Pugalia: I think valuations across capital goods, especially in the cyclical upturns and in this environment where everybody is reporting a strong beat on numbers, especially pure play capital goods equipment companies, valuation has been a struggle and that is not new.
