The current valuation of these stocks is below levels that prevailed at the market zenith in November ’10.
Markets may be struggling to find their feet after topping out in late 2010, but some stocks are in party mode. The benchmarks Sensex and Nifty have shed 20 per cent from November 2010, and broader markets, represented by the BSE 500, have lost 23 per cent.
But almost a third of the BSE 500 companies have hit new lifetime highs in this period. What’s more, most stocks have not cooled off much after recently hitting highs.
Now, which are these stocks that have reached lofty heights even as much of the market was languishing? Having reached new peaks, are these stocks now at prohibitively high valuations? Which were the sectors that they hailed from?
We considered the stocks that make up the BSE 500 universe, their all-time highs and trailing PE multiples. Here are the trends we found.
Of the stocks that make up the BSE 500 index, as many as 86 have hit new lifetime highs in 2012. These stocks have hailed mainly from the large-cap space.
The year 2011 saw many mid-cap stocks soaring to new highs. For instance, Gujarat Flurochem and Sanofi India surged to lifetime highs in late 2011.
But since January this year, large-cap stocks far outnumber the mid-caps hitting highs. Blue-chips such as ITC, Hindustan Unilever, Lupin and Asian Paints have reached new peaks this year.
Small-cap stocks have been unceremoniously shoved aside; just about two in every ten stocks that went up belonging to the small-cap universe.
Stocks which then corrected significantly after reaching lifetime highs also sport far more small-cap names than large-caps. For instance, VIP Industries, which hit an all-time peak of Rs 204.5 late last year, has since plummeted 66 per cent. Similarly, Rallis India is well below its all-time high registered in October last year.
Consumer is the king
Despite high costs affecting consumer purchasing power, consumer stocks were still preferred over others.
Besides the more obvious fast-moving consumer companies, pharmaceuticals, and automobiles, smaller plays such as paints, tyres and cigarettes also showed up in the new highs list.
However, there were a handful of stocks outside the consumer plays. Cement stocks were solid gainers, all notching up lifetime highs this year.
The auto ancillary sector too cropped up, with stocks such as Amara Raja Batteries, FAG Bearings, WABCO India and Bosch hitting lifetime peaks this year. Smaller capital goods and IT stocks such as Elgi Equipment, Honeywell Auto, Oracle Financial Services and eClerx Services also did well.
Okay, so prices of these stocks are at lifetime highs. But are their PE multiples too? No.
The current PE multiples in majority of these stocks are still below those at the market zenith in November ’10. That is, earnings for these stocks have outpaced the rise in stock price since November 2010.
For example, the stock of Bajaj Auto is off just 14 per cent from its peak in February 2012. The company has been clocking healthy growth in sales and earnings over the past five quarters. Still, it trades at a PE of 15 times trailing earnings now, against the 20 times in November ‘10.
Similarly, Dabur India’s current 31 times trailing earnings is still lower than the 33 times at the market peak, despite the stock trading just below its lifetime high.
However, there are a good number of stocks whose valuations surged ahead. For example, Bata India trades at a PE of 35 times, well above the 25 times in November ’10, even as net profit growth began decelerating from the July 2011 quarter. Similarly, McLeod Russell, despite posting uneven growth in sales and profits over the past several quarters, trades now at 17 times trailing earnings against the 11 times at the market peak.