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Sector that has seen worst value erosion & the one likely to deliver best returns


By Jayesh Khilnani


Nifty’s expected price-to-earnings multiple, a key valuation indicator, for financial year 2019 has corrected over 13 per cent to 17.7 times since August 28 this year when the 50-stock gauge hit its lifetime high of 11,760 points.

A study of all stocks listed in India, excluding financials, which are covered by at least 10 analysts and have estimates available, shows there are 217 such companies that have seen PE contraction. Out of these, the materials sector has the largest number of companies at 44, while communications and energy sector has the lowest at 10 each.

Here’s how the individual sectors have seen valuation contraction and what analysts expect of them going forward.

The Sectoral Picture

All sectors have seen contraction in expected price-to-earnings multiples for financial year 2019, led by industrials and followed by technology. The Nifty IT Index has been the best performing sector so far this year, with a gain of over 20 per cent. Consumer staples commands the highest valuation at over 40 times despite the expected price-to-earnings multiple for 2019 contracting 15 per cent since August 28. The energy space has seen the least contraction and also commands the lowest valuation among all sectors.


B. Table 1

Analyst expectation

Incidentally, the industrials space is expected to deliver maximum returns over the next 12 months. Analysts expect the basket of 41 stocks to generate nearly 50 per cent returns during this period. Healthcare is the least favoured sector by analysts, with return potential of less than 20 per cent. The consumer staples sector, now commanding highest valuation, is expected to return just over 20 per cent. Overall, analysts expect Nifty to deliver over 20 per cent return, rising to 12,500 despite the recent correction.

b. Table 2





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