Analysts believe cyclicals like cement are likely to do well as economy attempts to come out of the Covid-inflicted damage, while pharmaceutical stocks will return to favour whenever uncertainty heightens.
Data showed that Coal India and HPCL were trading below their average Price to Earnings ratio in the large-cap space; while Cipla, Aurobindo Pharma, Glenmark Pharma, Alembic Pharma,
and Ajanta Pharma are also trading below their average PE for the last decade. Cement major UltraTech has the widest gap to its 10-year average PE at 11.53. Its current PE is 27.96 compared to 10-year average PE of 39.49.
“Public sector companies as a basket has underperformed in the entire market rally. The valuation gap and policy changes make a strong case for re-rating of public sector companies,” said Gaurav Dua, senior VP, Sharekhan by BNP Paribas.
“Pharma has come out of years (2016-19) of underperformance and some of the heavyweights like Sun Pharma and Lupin are still much below the all-time high levels. It is more of mean reversion in valuation in some pharma companies,” said Dua. He is overweight on IT, pharma, specialty chemicals, cement, metals and private sector banks.