benchmark Sensex ended the week with its longest stretch of weekly gains since April. But, most of the BSE-500 stocks still trade 20 per cent or lower than their 52-week highs.
While large-caps have more or less remained resilient during the recent market-wide sell-off, small-caps had to bear the brunt. In fact, this was the first week the BSE
SmallCap index closed in the green after six weeks of back-to-back selling.
Brokerages say that recent headwinds on account of rising crude oil prices, a weaker rupee, higher interest rates and a surge in bad loans for domestic corporate banks, coupled with geopolitical worries and expectations of the US Federal Reserve hiking rates have impacted sentiment.
As a result, investors have turned selective in favour of stocks with high safety margin and visibility. Brokerages say that stocks exposed to rural markets
and sectors such as information technology
(IT) and retail banks
will do well.
“Our preferred rural beneficiary ideas based on recent performance, valuations versus history and growth forecasts versus history are Hero MotoCorp, Shriram Transport Finance, Ujjivan Financial Services, Dalmia Bharat, Emami
and Marico,” said UBS, in a recent note to clients From a sector perspective, UBS remains overweight on IT, retail and corporate private banks with strong retail deposit franchises and niche non-banking finance companies.
ALSO READ: Rupee hits 3-week low, slips 36 paise to 67.98 against dollar
While the headline FY19 consensus estimates have been downgraded by 4-5 per cent over the last few months, the downgrade is concentrated in PSU banks, health care and telecom sectors. Excluding these, FY19 estimates have been downgraded by a mere one per cent in the last six months.
Sales growth for large-caps has seen an acceleration. But, this metric for smaller companies has been weak in recent quarters. This, perhaps explains why the smaller stocks have been at the receving end.