Aarati Krishnan has pointed out that a series of miraculous events such as the election results, global recovery and sliding global oil prices have contributed to the 70% gain to the portfolio of bluechip stocks.
She has conducted a careful analysis of the present status of the portfolio on the issue as to which stocks to hold and which to sell.
Aarati Krishnan first points out that though the price-earnings (PE) of the market is high at nearly 21, the large-cap universe of stocks continues to offer a fair number of bargains. She explains that 44 per cent of the large-cap stocks on the NSE traded at a discount to the Nifty. A fourth of these stocks were even available at a PE below 15. In contrast, two-thirds of mid-cap stocks (market cap of ₹2,500 crore to ₹10,000 crore) and 60 per cent of small-caps (below ₹2,500 crore) traded at a premium to the Nifty! She adds that large-cap companies offer far better growth prospects and earnings visibility than their smaller peers. She points out that in the last 12 months, large-cap companies have expanded their aggregate sales by 17 per cent and net profits by 8.5 per cent. In contrast, mid-cap firms saw a 1.5 per cent dip in their profits. On an aggregate basis, small-cap companies have actually widened their losses.
She emphasizes that stock price gains from here on will depend on a company’s ability to deliver profit growth and so investors must shift from value (buying the stocks with the lowest PE) to growth at a reasonable price.
Aarati Krishnan makes a number of other excellent points on why large caps offer better investment opportunities. She has also explained how we can home in on the most promising stocks.
At the end, Aarati Krishnan has identified that three dominant themes that are likely to play out and identified the most promising blue chip stocks that we can buy.