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    70 high quality names available at 20-55% discount to 52-week highs

    Synopsis

    Quality can be defined differently by many analysts, but there is a consensus that a company that uses its capital efficiently and churns good profits for its shareholders consistently can be regarded as a quality name.

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    Analysts believe such quality names will be among the biggest beneficiaries when the market sentiments improve further.
    NEW DELHI: Market has been in a turmoil in the last couple of months, dealing with heavy foreign investor outflows and negative global cues. But, analysts across the spectrum are advising investors to pick quality names as they believe the India story is still intact and the market is still in structural bull run.

    Quality can be defined differently by many analysts, but there is a consensus that a company that uses its capital efficiently and churns good profits for its shareholders consistently can be regarded as a quality name.

    Both these metrics can be easily measured by return on capital employed (RoCE) and return on equity (RoE), respectively. Analysts regard the threshold of 20 per cent for both financial ratios that separates wheat from chaff. That is, companies that are delivering more than 20 per cent RoCE and RoE year after year can be said to be a good performer.

    The selling in recent months has been so heavy that as many as 70 NSE-listed companies that have maintained more than 20 per cent RoCE and RoE in the last three fiscals — FY19-21 — are available at a discount of 20-55 per cent from their respective 52-week highs.

    True, RoE and RoCE alone cannot be deciding factors. Management quality, corporate governance and business outlook of the sector that the company operates in is also paramount, but those metrics are a very good filter to shortlist investable companies.

    Among those, Sigachi Industries, Valiant Organics, Chemcon Speciality Chemicals, Bajaj Consumer Care, Tasty Bite Eatables, IOL Chemicals And Pharmaceuticals, Lux Industries, Metropolis Healthcare, Balaxi Pharmaceuticals, Glenmark Life Sciences, Rossari Biotech, Astrazeneca Pharma, Nureca, Gulf Oil Lubricants India and Timescan Logistics are down more than 40 per cent, presenting mouthwatering opportunities.

    “After correcting by almost 15 per cent from its Jan peak, Nifty 1-year forward valuation is now below its 10 year average of 19x. Even several large cap blue chip stocks are down 20-30 per cent and are available at reasonable valuations making them attractive for long term investors,” said Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services.


    Analysts believe such quality names will be among the biggest beneficiaries when the market sentiments improve further. In the last couple of days, we have already seen some buying in the above-mentioned counters.

    “Risk sentiment improved, with dip-buyers increasing bets that weeks of market volatility could have priced in the economic impact of the conflict in Ukraine. Tumbling oil prices are likely to light a fire to the sentiment,” said Sageraj Bariya, Vice President - Institutional Sales at East India Securities.

    Though, even if the Ukraine crisis may be priced in already, there are a number of events lined up, especially ECB and US Fed policy meetings, where a monetary tightening is expected. that may hit market sentiments. But in these times, only good performing companies instill confidence among investors, analysts say.






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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
    The Economic Times

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