The stock market is at a multiyear bull run paradigm though it seems to be at high valuation. Indian(Sensex and NIFTY) are sitting at 23-24 trailing PE and 19-20 forward. Its about 20 percent higher than long term average valuations. Though its sitting at slightly high valuation now, it seems to be at reasonable valuation from a long term(3 to 4 year perspective).
There are sectors which are fairly valued while some of them are over valued .The corporate earnings in Qi 2017 has not been good at 7.4 percent and -8.6 percent(topline and bottom line) mainly due to GST destocking and demonetization effects. So having a long term and bottoms up stock picker perspective is more important. Some of the sectors like private banking, housing finance, consumer durables, cement, leather goods, Automobiles and metals have done well and will continue to do well while other sectors have not done well.
There are few local factors which will prove to be green shoot and bullish like domestic investors suddenly getting very bullish on Indian market and splashing 3 to 4 billion USD every month in 2017, making up for the Foreign institutional outflow. Secondly the long term benefits of some local factors like demonetization (long term Tax base increase, attack on black money, economic formalization, additional liquidity of 2 to 3 lac crore with banks, reduction of bank lending rates) and GST reforms (formalization of informal sectors, Increase in tax base, one india market leading to increase in trade and services) and lastly good potential monsoon outlook.
From 2to 3 years perspective , we have many sectors and companies sitting at a high growth roadmap and fair value. For example few BFSI sectors like private banks, Housing Finance banks, insurance firms. Some other favorable sectors like Auto/ Ancillaries, pharma and some infra companies are also ripe to be invested now for few years. Some companies in these sectors are sitting at high ROE and high profitability growth map and justify their valuations.
Some of these companies where you can invest now with a long term perspective are the following(Most of these companies are from my 2017 MODEL PORTFOLIO – refer my earlier blog in january 2017}
1) Yes Bank
2) Dewan Housing Finance
3) India Bulls housing Finance
4) Max Finance Savings
5) Tata Motors
6) Apollo tyres
7) J Kumar Infrastructure
8) IRB infrastructure
9) POWER grid
9) HCL technology
10) Aurobindo Pharma
They have been selected as they are quality businesses which have a high ROE and high earnings projections justifying their valuations, having strong balance sheets with capable management teams and hence making it highly probable to give decent returns in future
So invest in them with a long term perspective . A quick check on the 2017 Model portfolio real time tracker on the blog shows that it has grown by 31 % while the sensex has grown by 19% till now.