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Why Index Stocks May Not Be The Best Bet To Make Stellar Returns?

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To begin with, let us put the article in right context. We are telling investors to look beyond index stocks in the current scenario only, given the capitulation in the small and midcap space. This article will not hold true, if there is a sharp rebound in the mid and small cap space.

Some index stocks have given stellar returns to investors over the past decade. Classic examples include HDFC Bank, TCS, Bajaj Finance etc. However, most of these companies or banks as the case maybe have grown fast and probably reached levels, where they may not be able to grow at the same stupendous rates of the past.

 Why Index Stocks May Not Be The Best Bet To Make Stellar Returns?
 

This means, if you are looking at compounded annual returns of more than 20 per cent each year from these companies, over the next five years, it maybe difficult to come by.

Look for options beyond the index stocks

Individuals who are astute should look for options beyond the index stocks. Of course, if you are risk averse, it is a good idea to stay put with index stocks.

However, if you are looking at much superior returns, than small and midcap stocks are the best at the moment the best bets.

What are the investment options than?

Look at some of the stocks from the FMCG space. A stock like Bajaj Consumer Care with its leading oil brand, Bajaj Almond has almost halved from its 52-week high. This share offers a dividend yield of 5.51 per cent, based on the dividend declared in Jan earlier this year.

It's almost impossible to find a large cap stock, apart from the mining stocks that offer such decent dividend yields. There are several other small and midcap stocks that have fallen dramatically including the likes of Bharat Forge, JBM Auto etc., which look from a long-term perspective. Take another case of a company with a strong pedigree - L&T Finance Holdings. This stock too has fallen from 52-week high levels of Rs 180 to the current levels of Rs 92.

Many of these stocks have the potential to deliver superior returns. Apart from this the dividend yield on some of the shares are a good option for investors. In terms of price to book as well, and price to earnings a few stocks remain attractive.

 

Of course, with economic revival, those from the mid and small cap space could give stupendous returns.

GoodReturns.in

Read more about: stocks sensex nifty shares
Story first published: Tuesday, September 17, 2019, 11:27 [IST]
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