Should you invest in beaten down large cap stocks?

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Do you also think that investing in large-cap stocks, which are often recommended repeatedly, guarantees profits? Do you also believe that one can forget about the money invested in them? No, you should absolutely not do that. Let me tell you an interesting story related to this.

A year ago, Vikas received a bonus from his company and, on someone’s advice, he invested his entire money in the shares of some companies. But today, he regrets it because the shares he invested in have performed poorly over the past year. In fact, these shares have underperformed the Nifty benchmark index as well, meaning they have given lower returns compared to the Nifty. Actually, someone had advised Vikas to invest in shares of different sectors and forget about them.

Like Vikas, many people blindly invest in shares of experts’ recommendations, believing them to be the strong shares. But before we discuss these shares, let’s first understand what exactly are large-cap shares and why are they called giants?

According to the regulations of the market regulator SEBI, the top 100 companies are classified as large-cap, which means giants, based on their market capitalization. In addition to this, in any sector, a company can also be considered a dominant company based on factors such as the highest number of products, highest revenue, production capacity, market share, or growth in income and profits.

Shares purchased by Vikas fall into two categories – one that has performed lower than Nifty, meaning they have given positive returns in the past year but less than the index. While Nifty provided approximately an 11% return over the past year, stocks like Bajaj Finance, HDFC Bank, SBI, and TCS have given returns ranging from 2% to 9% only. On the other hand, there is a long list of shares like Havells, HUL, Asian Paints, SRF, Pidilite, D-Mart, Page Industries, and UPL, which have given negative returns of up to 18% as compared to Nifty.

First, let’s understand the reasons behind the underperformance of these shares, and then we will discuss what should be done with them. Brokers downgraded UPL, a leading company in the agrochemical sector, due to weak demand and no improvement in debt after Q1FY24 results. Similarly, analysts gave a negative rating to Page Industries due to a 59% decline in profits in Q4FY23 and concerns about weak demand. In addition, increased expenses and lower profit estimates have led to a decline in D-Mart’s share price. On the other hand, brokers are not very bullish on Pidilite due to competition and rising costs.

Now the biggest question is what to do with these beaten-down giants? According to Market Expert Ambrish Baliga, giants in the chemical, retail, or FMCG sectors had outperformed in the post-COVID bull run. Therefore, there was underperformance in some sectors, especially among companies whose results had disappointed. Similarly, FMCG shares had faced a setback due to reduced consumption and increasing competition. However, now there is a pickup in some shares related to specialty chemicals, especially those that are global leaders. So, UPL, Pidilite, SRF, Asian Paints, and Havells might be good candidates for contra-buying, meaning it could be a good time to buy when the market is down.

In conclusion, even giants’ shares can underperform in the market. So, like Vikas, one should not blindly invest in any share and should definitely avoid the mistake of forgetting about the investment after making it.