Investors shift from sector bets to stock-specific trades
Investors have accepted the fact that returns can dramatically vary between sectors as demand dynamics change from biz to biz.
For instance, in the auto industry, returns from stocks such as Eicher Motors, Ashok Leyland and TVS Motor have been almost four times higher than average sector return in the past one year. Among NBFCs, Bajaj Finance and Indiabulls Housing Finance have generated four times higher returns than the sector average. Also returns from industrial stock such as Bharat Electronics (BEL) and Cummins India have been significantly better than the others in the sector.
The trend continued in the past one month, with some stocks replacing others within a sector. Many fund managers thus took a ‘bottom-up’ approach — picking stocks on the merits of individual companies rather than buying the sector story. Their choices have been guided by parameters like demand dynamics, competition, and earnings visibility. Such a strategy has helped stocks that are not part of the main indices to outperform benchmark indices in the past one year.
This also explains the surge in midcap stocks. But, some believe under-performance of large caps could reverse with many midcap stocks trading in the over-valued zone. Credit Suisse, a broker, recently recommended switch trade — preferring large caps over small market cap stocks company: from Bajaj Finance to Mahindra & Mahindra Financial Services, from Eicher Motors to Maruti, from Page Industries to Asian Paints and from Thermax to Larsen & Toubro.