Automobiles and financials continued to propel the overall earnings growth, while they were also joined by global cyclicals such as oil and gas and metals. The only heavyweight sector to disappoint was information technology, with the overall earnings seeing a decline for the first time in 26 quarters.
Kotak said it finds most sectors and stocks quite overvalued in the context of historical valuations coupled with the Streets high assumptions for profitability in the short term, which may not sustain and weak business models and/or emerging risks to even hitherto strong business models in the medium term.
Stocks of public sector undertakings (PSUs) have been on fire in the past year as investors cheered an improvement in key operating metrics and embraced counters of these state-owned enterprises, analysts suggest.
The S&P BSE PSU Index has gained over 90 per cent in the past year, rising much higher than the S&P BSE Sensex, which has rose nearly 19 per cent during this period, according to ACE Equity data.
The BSE PSU Index, reports show, has delivered a compound annual growth rate (CAGR) of 28 per cent (including dividends reinvestments) over five years and risen by almost 60 per cent in the past year.
This isn t a hypothetical example to understand the link between stock price reaction and concentrated ownership but a reality in the world of PSU stocks on Dalal Street.
Sanjeev Prasad says: “Probably 90% of the market is overvalued. While the very largecap names seem to be more reasonably valued, as we go down the market cap quality and risk curve, the extent of overvaluation keeps on increasing and you cannot even understand what is happening in some of the midcap and smallcap stocks.”