2 of every 3 sectors turn expensive! Here are analysts' top picks in Feb

NEW DELHI: Two out of every three sectors are now trading above historical averages, as India's market capitalisation as a percentage of GDP hit a fresh peak on hopes of a strong rebound in earnings.

The growth going forward, however, would not be a blanket one and, hence, analysts are advising investors to go for a bottom-up approach to investing.

On a PE basis, specialty chemicals, infrastructure, consumer durables, real estate, logistics and media were some of the sectors trading at steep premium valuations over their historical averages.

The technology sector now trades at a P/E of 27.5 times, a 52 per cent premium to its historical average of 18.1 times. It may be probably one reason why IT stocks have come under some selling pressure of late.

Oil and gas sector trades at a P/B of 1.6 times, a 12 per cent premium to historical average of 1.4 times. This sector trades at a P/E of 12.3 times, a 6 per cent premium over historical averages. Brokerage Motilal Oswal noted that Brent prices averaged $83.8 a barrel in January, as the concerns over a fresh set of lockdowns subsided, with cases in the US declining sharply in the past couple of weeks.

Consumer sector P/E of 41.6 times at January-end was also at a premium of 10 per cent to 10-year average of 37.9 times. After a strong run up post the festival season, FMCG demand momentum slowed in January. A rise in Covid cases across the country led to restrictions and curfews returning, resulting in a decline in consumer mobility and out-of-home consumption, Motilal Oswal said.

Analysts said one needs to place emphasis on fundamentals now and search for companies with healthy consistent growth and quality cash flows and RoEs.

In its February note, Axis Securities said it likes ICICI Bank, Bajaj Auto, Tech Mahindra, Maruti Suzuki India, SBI, Hindalco Industries, Bharti Airtel, Federal Bank and Varun Beverages.

The brokerage also likes stocks such as Ashok Leyland, Bata India, Krishna Institute of Medical Sciences, Equitas Small Finance Bank, Mold-Tek Packaging and Amber Enterprises, among others.

Motilal Oswal Securities likes large caps such as ICICI Bank, SBI, L&T, Axis Bank, Reliance Industries, Bharti Airtel, Infosys, Hindustan Unilever, Titan, and Hindalco.

In the midcap and smallcap spaces, the brokerage prefers Ashok Leyland, Oberoi Realty, Indian Hotels, Devyani International, Zensar Tech, Indigo Paints, Gujarat Gas, Orient Electric, and VRL Logistics.

Among largecaps, Emkay Global is positive on Eicher Motors, ICICI Bank, Infosys, Maruti, and SBI while remaining underweight on PNB.

It likes ABFRL, Bharat Forge, Birlasoft, Sunteck Realty, Varun Beverages, and Westlife Development, as small and midcap picks.

Julius Baer said it maintained its constructive view on the equity market and India remains a ‘Buy the dips’ market rather than a ‘sell the rallies’ market.

"In the near term, we expect largecaps to outperform the mid and small caps. Currently, we largely prefer domestic cyclicals (BFSI, Industrials, cement, real estate, etc.) over defensives, and growth over value, although we could be positively biased on select defensives, value and midcaps on a bottom-up basis," it said.