What do high valued stocks mean to retail investors?

Mahalakshmi Hariharan | Mumbai | June 22, 2015 14:50 IST

Retail investors could look at investing in high valued stocks like Page Industries and Eicher Motors Ltd only if they are risk averse and have a long term view on the same, note experts.

It is true that over the past few weeks Indian stock markets have tumbled, but if we look at the past one year, indices have performed quite well. Since the Modi Government has come into power, the bull run begun. BSE’s Sensex has risen by almost 2500 points from 24878.66 points in June 2014 to the current 27316.17 points on 19 June 2015.
At the same time, share prices of companies like Page Industries, Eicher Motors Ltd, Bosch, MRF, which are high valued stocks, have risen sharply over a period of time. While Page Industries is today quoting at around Rs 15,000 per share, Eicher Motors Ltd and MRF are quoting at around Rs 19,235 and Rs 33,100, per share, respectively.
The question now is—should retail investors look at investing in these stocks or rather can they afford to invest in these stocks?
Experts are of the view that retail investors could invest in these stocks, only if they are risk averse and have a long term view on the same. Chartered Accountant Rishabh Parakh, Chief Gardener & Founder Director at Money Plant Consulting, Tax & investment advisory firm says that if you look at the trend, in the last five years, stocks like MRF has surged by almost five times, while Page Industries and Bosch are up 17 times and four times, respectively. So while these returns are too tempting for retail investors, it is also true that they will usually think twice before buying or investing in them. He also adds that while most of them feel these are ‘expensive’ stocks to buy, most of the times they do ignore other important company parameters such as its face value, moat, earning visibility and so on.
Yes, most of it completely depends on the investor and his risk appetite. Investors should look at parameters like moat, healthy earning visibility, associated with these companies. Moat is nothing but the competitive advantage that one company has over other companies, in the same industry. In the case of Page Industries or Jockey India, this is the most popular innerwear and leisurewear brand in India, as compared with its competitors from the same industry. Thus, it is not that this stock is overpriced, but it is the quality of the company and its products that is reflecting in the stock price, notes Parakh. So, while stock prices of MRF, Page Industries or Bosch seem to be overpriced, one should note that these companies do have healthy earnings visibility.
Experts also believe that companies like Bosch, MRF and Page Industries are founded by investors themselves and they are not willing to sell their stocks as they are assured of the growth and earning visibility. Thus, stock prices of these companies do not fall; instead only see a rise, unless there is some kind of negative news. Again, because such companies are industry leaders, their promoters avoid going for stock splits. Thus, having limited equity helps them to command a premium, keep valuations high.
So what kind of stocks can a retail investor look at? Parakh advises that a retail investor should choose fundamentally strong companies with a good management and corporate governance. While there are many ways of choosing a stock by doing a fundamental analysis, technical analysis, peer comparison of various ratios and so on, it is advisable to study the stock well and then go for it, stay invested for the long term.



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