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    AMC stocks in value zone, but growth triggers absent: Sandip Sabharwal

    Synopsis

    AMC stocks, we can say they are in value zone just because they have done so badly and valuation is not as expensive, but growth triggers are not there.

    Sandip SabharwalETMarkets.com
    So, their success out there will determine how that stock will do. So, Vedant relatively is a much better company, highly cash generating but valuation is still a bit stretched. So, I think that is something which could be on the lookout.
    "On the global side, I think it is a question of the margin and the price war becoming even more intense and could become big," says Sandip Sabharwal, asksandipsabharwal.com

    I am looking at AMC stocks. None of them are doing well. I look at Angel stock broking close to its peak it made. ICICI Securities below the 200 DMA. Indian market is doing okay. SIPs are still there. More and more Demat accounts are opening. Merchant bankers are getting their deals. IPO market may not be vibrant for the quarter gone by, but if markets stay where they are, IPO markets will make a comeback. Is it a good time to, let us say, buy AMC stock or if not AMC stock, maybe like a platform company like ICICI Securities or Angel?
    The issue with both these businesses is that margins are declining. So, from the AMC standpoint also, a series of actions by the regulator led to lower margins and on top of that most equity funds tend to be the biggest sort of income generators for these AMCs. In last couple of years, we have seen a significant underperformance coming in out there. So, there has been a shift from the growth of many of these AMCs. So, one, newer AMCs have become the biggest market share. Secondly, we have seen that money has moved out from mutual funds to other investment avenues. On the global side, I think it is a question of the margin and the price war becoming even more intense and could become big. So, the intensity could further increase going forward and that trading volume jump up which happened post-COVID, I think that is also starting to moderate. So, I do not see any big value per se. So, AMC stocks, we can say they are in value zone just because they have done so badly and valuation is not as expensive, but growth triggers are not there.

    Somebody is of the view that Indian stock markets in five years, from here to next five years, the financial inclusion will increase, more Demat accounts will open. The markets if the earnings growth is anywhere between 12% to 13%, you will see that kind of uptick even in benchmark indices. The wealth of the stock market will grow, new and new investors will join in. Then what is the best way to bet on that?
    The best way is to identify the growth companies which will capture this and where valuations could still be reasonable or when valuations are a bit stressed, so over time because they are doing so well and they have some productivity improvement or market share gains or can capture new opportunities overseas. So I think that is the way to participate. I do not think the way to participate is to bet on broking or AMC stocks.

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    What is the outlook when it comes to Siemens after its quarterly performance? It has been fairly robust, profits and EBITDA came in above what the street was pencilling in and even the management commentary at least from the global CEO on India has been fairly optimistic. Your views?
    The critical things here are, one, these companies have limited liquidity. So, what happens is that the liquidity is not going to increase and the older investors are not going to sell because the outlook is so positive and they are outperforming so much in terms of delivery expectation that that gives the valuation a price cushion. But on the flip side, the valuations have run up so much that the valuation of particularly Siemens is I think more than 55 times next year. It is not even this year. So, to that extent, investors need to decide what valuation they need to give a company. So, I think it is valuation headwind now rather than a fundamental headwind.

    Where do you see some of these hallowed niche consumption names moving for rest of the year, whether it is Vedant or Campus or Sula or Ethos. These were the go-to stocks, the word everybody said that it is a K-shape recovery and in a K-shape recovery luxury will do very well. Niche consumption pockets will do very well. Indians will buy more watches. Indians will consume from beer to wine. There are more weddings which means more wedding related apparel will sell. What happens to some of these hallowed stocks now?
    I think it all comes down to valuation versus growth. So, I think, for example, something like Campus got up to more than 100 times earnings. So, 100 times earnings are not justified for any kind of growth. And to that extent, we have seen a significant sell-off and even now trades at 50 plus. Now, it needs a significant growth uptick for these valuations to sustain. Same is the case with many others. Vedant Fashions, it is a good company. It is dominant in its space. It is moving from men to women sort of occasion which is a much bigger market. So, their success out there will determine how that stock will do. So, Vedant relatively is a much better company, highly cash generating but valuation is still a bit stretched. So, I think that is something which could be on the lookout.




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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