Nifty biggies hit by ‘time correction’

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Investors in stock markets have a liking for the big stocks or large caps. Most of the investors believe there is no risk and even return has been good. But if one goes by the figures, it turns out that of the 50 Nifty companies, 22 companies have lagged the index in 2023. Meaning they have given lower return than Nifty. So, question is which companies have lagged the Nifty. What are the reasons behind this? Also going ahead, can you make portfolio based on these companies. Let’s look into it.

Giants like Adani Enterprises, Adani Ports, Reliance Industries, HUL, SBI, Asian Paints, and other prominent companies are part of these 22 companies that are underperforming. This means that the country’s largest government bank and companies from the two wealthiest and most famous corporate families in the country, Adani and Ambani, are also included in this list. So far this year, these companies have provided returns ranging from 8.2% to -37% compared to a 9% return on the Nifty.

These are the companies that are present in almost every passive fund or index fund manager’s portfolio, and when someone first enters the stock market, they are advised to start investing in these well-known companies.

So,  why have these companies underperformed the index? According to stock market expert Santosh Singh, he believes that before January 2023, the market and most of the stocks had given good returns. After that, these stocks are undergoing a “Time Correction,” meaning it will take time for these stocks to start the next uptrend. This is why they are trading in a range currently.

Before investing in any share, you should look at some key metrics related to that company, such as Price to Equity Ratio, Return on Equity, profit growth, and so on. PE tells you about a company’s valuation, RoE indicates how efficiently the company uses equity funding to generate profits, and profit growth gives you an idea of the company’s financial and business position. It is generally believed that if a company performs well on these metrics, it can be included in a portfolio.

Now, let’s apply these criteria to these 22 companies: PE less than 40, RoE around 15% or higher, and profit growth. Only 9 companies meet these criteria, including SBI, HDFC Bank, Infosys, Kotak Mahindra Bank, Wipro, Bajaj Finserv, ICICI Bank, Eicher Motors, and TCS. If we consider a PE less than 30, even Bajaj Finserv won’t make the list.

If you closely examine these numbers, you’ll find that apart from Eicher Motors, the remaining 8 companies belong to the Banking, Financial Services, and Insurance and IT sectors.

Now, the big question is whether a portfolio can be built with the help of these 8 or 9 companies. According to market expert Santosh Singh, you can consider investing in Eicher Motors, ICICI Bank, Kotak Bank, SBI, and Britannia from a 1-1.5 year perspective. You can also consider investing in Hindalco if it experiences a downturn. You can expect returns of up to 40-60% in these stocks, although it may not be advisable to invest all your cash at once.

Therefore, it’s essential to not blindly enter the stock market based on rumors or just friends’ advice. You should carefully research and seek advice from a SEBI-registered financial advisor before creating your portfolio.

(Disclaimer: Stocks recommendations by experts or brokerages are their own and not those of the website or its management. Money9.com advises readers to check with certified experts before taking any investment decisions.)