ICICI Securities in a recent note said that the Indian market's rally is becoming broad-based for the first time since the financial year 2017, adding that 24 stocks have accounted for more than 75% of the BSE 100 performance in FY 2020-21, so far.
"The tide is turning in terms of the number of stocks contributing to the majority of the index performance (more than 75% of BSE 100 index movement) at 24 stocks, which is the highest over the past four years," ICICI Securities said.
Last year, the Indian equity market's performance was driven by a surge in a handful of large-cap stocks, while mid-caps and small-caps remained mainly sluggish.
Small-cap and mid-cap indices have also outperformed large-caps for the first time since FY17, ICICI Securities said.
"Market valuations continue to turn expensive-it is now above +1 SD (standard deviation) on CAPE ratio, while on the trailing and forward P/E it was already above +1 SD. Market cap to GDP has shot up to 95% due to a mix of better market performance and falling nominal trailing GDP. Valuation on P/B is reasonable at the long-term average of 3 times (trailing basis)," the brokerage said.
Large-cap picks from the brokerage:
- SBI Life
- Bharti Airtel
- Balkrishna Industries
- Abbott India
ICICI Securities also has a 'buy' call on Hindustan Unilever Limited (HUL) with a target price of Rs 2,420 as the stock is in the breakout above a seven weeks range (Rs 2,220-2,043) as the stock rebounded after a higher base at the rising demand line and 52 weeks EMA (Exponential Moving Average).
It also has a 'buy' call on Housing Development Finance Corporation Ltd (HDFC) with a price target of Rs 2,440. "Stock rebounding taking support at the lower band of the rising channel and 20 days EMA and RSI in buy mode," the brokerage said.
Mid-cap and small-cap picks:
- Akzo Nobel
- Jyothy Labs
- Prince Pipes and Fittings
ICICI Securities has also upgraded its call on DCB Bank from 'Hold' to 'Buy' with a price target of Rs 135. The brokerage feels that a better-than-expected revival in the economy will propel credit growth across the board and especially in small business, which is helpful for DCB, which has good exposure to the MSME segment.
Note that in a bullish market, valuations are high, which means that some stocks may be expensive and would be better if they are purchased with a long-term investment perspective in mind.
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