It has been a fantastic rally, at least the indices are saying so, ever since the Finance Minister, announced a cut in the corporate tax rate. The Sensex has surged nearly 3,000 points, since the Finance Minister announced a cut in the corporate tax rates. However, bulk of the rally has been led by companies who stand to benefit from the cut.
The present rally in stocks is restricted to a handful of names including HDFC Bank, HUL, Britannia, Larsen and Toubro, Eicher Motors and ICICI Bank. We are getting back to the same old story, where a handful of stocks rally, taking the indices higher while the broader markets languish.
Which stocks to buy now?
To be honest, the bluechip index stocks have run their course, following the cut in corporate tax rates. Chasing them at any and every price, does not make sense.
One will have to look at stocks, where there have hardly been gains and yet benefit from the corporate tax cut. A classic example would be Coal India, which pays high taxes and the stock has barely moved 4-5 per cent, since the announcement.
Now, this is a stock that will also pay a very good dividend in the month of Feb, so one can look at this stock. If you have a penchant to take risk, you might want to look at Zee Entertainment. The shares have hit a 52-week low, on reports that mutual funds have begun selling the pledged shares of the promoters. The problem right now is that the company is fundamentally sound, but, the group is saddled with debt. They have borrowed money from mutual funds against the pledged shares of the promoters and now mutual funds are selling heavily to recover their debts.
Many other stocks have also not participated in the rally. One such stock is Hindustan Zinc. If you buy the stock now, the chances are you would be entitled to an attractive dividend, which should make the stock a good bet. Dividends in the past have been declared either in the month of March or in the month of Oct. Last year, the dividend yield on the stock was in excess of 9 per cent. However, this year, we do not anticipate the company to declare a hefty dividend.
Investing in select banking stocks, at the moment does not make sense, since we have seen a substantial rally in these set of shares. The midcap and the smallcap space too has witnessed a decent rally, but, here again there have been pockets where there is severe under performance. Many companies are likely to benefit from the corporate tax cuts, but, not to the extent the larger companies would benefit and hence these have not risen very sharply. Another good stock to buy is Bajaj Consumer, the makers of Bajaj Almond Hair Oil. The shares of the company are offering a dividend yield of nearly 5 per cent. That is fantastic for an FMCG stock. Also, the price to earnings multiple for the stock is just 12 times, one year forward earnings. This is cheap for an FMCG stock.