A few weeks ago we strongly suggested buying the beaten down banking stocks. It was not because we anticipated a capital infusion, but, because in some banks like SBI, it was impossible to create a terrific franchisee and branch network like that. Fundamentals were bound to improve and could hardly get worse from here.
It may also be advisable to buy beaten down names from spaces like pharma, which have the potential to rally.
Clearly, there is a churn that is happening in the markets. Investors have realized that stocks that are heavy on valuations may need to be sold into. Take a classic example - private sector banks. This week investors sold heavily into private banking names like Yes Bank, HDFC Bank, IndusInd Bank and Kotak Mahindra Bank. This is something that we have never seen.
Similarly, beaten down names from the IT sector, like Infosys has been witnessing good buying support. In fact, despite reducing revenue forecast, the company's stock still rallied. This trend of beaten down names seeing buying support may continue.
Mutual Funds are also busy selling stocks that have rallied and buying stocks that are lower on valuations. In fact, mutual funds have now increased their holding in stocks like Ujjivan Financials, Tamil Nadu Newsprint, Thyrocare while reducing holding in stocks like Avanti Feeds, which has run up sharply.
In fact, one would not be surprised if the next set of stocks that rally are from the pharma space. Stocks like Sun Pharma and Lupin have fallen so much, one is forced to ask, how far they could fall?
In fact, Lupin has dipped from levels of Rs 1,600 to Rs 1,000, a near 40 per cent fall. Several blue chip names are languishing at 52-week lows. Amara Raja Batteries is a classic example, where the stock has dropped from levels of Rs 1059 to the current levels of Rs 684, merely because lead prices have risen. The company continues to be a top two player in the automotive and led battery space.
Clearly, it maybe time to churn your portfolio a bit. Look for stocks that are beaten down and still have value.