It is hard to find multibagger stocks, especially at a time when the markets are trading at valuations which most analysts would call ‘not cheap’. Many small and midcap stocks rose on the back of liquidity tide in the last 12-18 months, but sustained outperformance cannot be guaranteed.
Investors should always stick to those stocks which have strong earnings visibility, good pricing power, stable management, unique product portfolio and long-term structural which will act as key triggers.
A multibagger stock is a stock that multiplies your investment considerably in a relatively shorter period of time. More than 400 stocks on the BSE more than doubled investors’ wealth in the last one year, which includes names such as Prime Securities, Tata Metaliks, Jindal Stainless, KM Sugar Mills, Escorts, Aptech, Future Lifestyle, etc. among others.
Analysts advise investors not to get into stocks which are not liquid, but might have seen a sharp rise in the past. Instead, they should trust proven stories which hold potential to more than double your money in next 2-3 years and at the same time provide a safety net to investors.
“Markets offer a low margin of safety right now, but the longer-term structural healing of the Indian economy continues unabated, though. Hence, any correction will offer opportunities to invest,” Dipen Sheth, Head — Institutional Research, HDFC Securities told moneycontrol.
Top five stocks which he thinks could turn out to be potential multibaggers include names like Jamna Auto, PNC Infratech, J Kumar Infraprojects, Repco Home, and TeamLease.
The valuation of Nifty look stretched, but not scary as off now. The Sensex trades at a P/E of 18.1x, above its long-period average of 17.2x. At 2.7x, the Sensex P/B is at its historical average. The return on equity (RoE) is at 15.2%, which is still below its long-term average.
“I wouldn’t use the word ‘scary’ at this point in time. However, on earnings basis maybe the valuation is a bit stretched but if you look at long-term history in terms of where we are in the corporate earnings cycle,” Manish Gunwani, Deputy CIO, Equity at ICICI Prudential Mutual Fund, told CNBC-TV18 in an interview.
“Hopefully, we are at the bottom and picking up. So, on a price to book basis, on replacement value basis or on a normalised earnings basis the market is fair. It is not very cheap but it is not very expensive either,” he said.
The S&P BSE Sensex rose by about 18 percent in FY17 and about 10 percent so far in the year 2017. Further upside from current levels would require fresh triggers, but there will be a lot of action in individual stocks.
After a blockbuster FY17, FY18 returns are going to be a function of revival in earnings growth which has remained elusive so far. The macro backdrop is solid with strong flows and reform momentum, but for markets to go into unchartered territory requires earnings revival.
“We are cautiously optimistic on markets and prefer companies with strong earnings visibility, good pricing power, and long term structural triggers. Valuations at 22.5x trailing and 18.3x forward PE do not leave much room for re-rating,” Gautam Duggad, Head of Research, MOSL told moneycontrol.
“We like several ideas across the large cap, mid cap, and small cap space. Some of our top ideas are – Tata Motors, ICICI Bank, SBI, ITC, Britannia, Hindalco, Colgate Palmolive India, Crompton Consumer, IOC, RBL Bank, Manpasand Beverages, Ultratech Cements and JK Cement,” he said.