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Corrected Valuations: Bargain hunting opportunity

| 9/12/2011 5:21 PM Monday


There are other surprises like Educomp Solutions, which historical-ly traded at a higher P/E multiple, but has been given a cold shoulder by the investor fraternity after the IT raids it witnessed. DB Realty is another company that witnessed double blows resulting from poor sectoral sentiment and alleged involvement in fraudulent activities. Apart from DB Realty, many other companies from the real estate sector are trading at a lower P/E, like HDIL and Ackruti City. Some more big names, like Videocon Industries, REC, Aurobindo Pharmaceuticals and Torrent Power, which have historically been trading at a higher P/E, are now trading at a single digit P/E.

While these 1040 companies are trading at a single digit P/E, the Sensex is still trading at 18.5x. Put differ-ently, there are many companies which are trading at a 52-week low while the Sensex is not. This only under-scores the mood of pessimism in the market, where investors have become risk-averse and market sentiments are fragile. However, we are not saying that all these counters are good buys. We feel that investors need to be cautious, as ‘low’ need not necessarily mean ‘good’ in this market. Many of these scrips may witness some more fall going ahead.

It is true that many of these companies would be reporting far from great numbers, perhaps even poor or negative numbers, for the next two-three quarters. It is also possible that some may witness another downturn. However, those who have an investment perspective of the next two years can start investing in the some good ‘A’ group counters with good management bandwidth, which are available at good valuations. This is an opportune time to do some bargain hunting for your long-term portfolio. Rather than spending your time fretting about the current situation, it would be better to take a step ahead and prepare a good long-term portfolio with a perspective of three years.

 

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