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Among the host of cues that markets consider while pushing up or pummelling stocks, sectors in which a company operates rank high. While factors pressuring earnings have been mounting in the past few quarters, some sectors have struggled more than others.
Stocks in such sectors have seen a rather sharp fall in valuations. In fact, the sector factor sometimes even overrides other factors such as earnings growth, going by the trends in valuations for the BSE 500 companies.
Bearing the brunt
Infrastructure, oil and gas, plastics, packaging, hotels, capital goods and education feature prominently among the stocks whose earnings multiples were marked down the most between December this year and December ‘10.
Raw material costs for plastics companies, for instance, have been steadily creeping up for the past four quarters, hitting profits.
Sintex Industries saw its valuations drop to 6 times consolidated trailing earnings in December '11. The company had traded at a far higher valuation of 15 times in December '10. The stock's price tumbled 55 per cent.
The stock of Sadbhav Engineering, a construction and infrastructure company, is now at a valuation of 13 times earnings, well below the broader market valuation of 16.8 times, even as the company put up strong revenue and earnings growth. The stock had enjoyed better-than-market valuations of 24 times in December last year. However, the sector's many problems, ranging from slowing order inflow to tightening liquidity, capped the fortunes of stocks in this space.
Better performers
The consumer theme was dominant throughout, with stocks in the related sectors enjoying high valuations. Stocks in sectors such as gems and jewellery, FMCG and telecom either held on to their valuations or markedly improved on them.
ITC, Gitanjali Gems and Rajesh Exports, for instance, held on to their respective valuations. Meanwhile, Marico, Colgate Palmolive and Bharti Airtel saw their PE multiples move up significantly between this December and the last.
Other sectors whose stocks maintained or improved upon their valuations in the year gone by include auto ancillaries and tyres.
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