“When men are brought together,” the French mathematician Henri Poincaré wrote, “they no longer decide independently of each other, but react to one another. ”
This behaviour is so common that there are many words for it. Herd mentality. Hive mind. Groupthink. As a result, bull markets last longer than valuations can justify. And downcycles, like the current one, can also be long and painful. The same stocks that were so attractive to investors months ago with expensive valuations, investors don't want to touch when they are cheaper.
But in addition to macro factors impacting stock markets, investors hate uncertainty. With US President Trump hitting allies like Canada and Mexico with hard-to-justify tariffs, and promising more tariffs to come for EU, Brazil, Japan, South Korea, and yes, India, stock markets globally have become volatile.
Trump also seems to be a man of many moods. He will announce tariffs one day, and his advisers will hint the next morning that these tariffs may be removed. Maybe he just likes watching markets switch from green to red and back again.
But as India's macro numbers recover, the recent downcycle in stocks may offer some interesting opportunities for investors looking for bargain buys, and willing to ignore the herd.
In this week's Analyticks,
Fast growing players: Companies showing resilience in a weak market
Screener: Stocks with a strong PEG ratio and good growth in Q3 revenue and net profit
Let's hunt for some diamonds.
In an uncertain environment, investment options narrow
Some economists believe that uncertainty is the world's new reality. "The past seven-plus decades of free trade..and relatively peaceful cooperation among nations", Robert Kagan writes, "are a great historical aberration."
The world is now facing tariffs, the rise of populism, and rising conflicts. This makes it more difficult for investors and analysts to predict business growth. Growing exporters may be hit by tariffs that make them less competitive; new sanctions may drive up the price of oil. But there are some companies in the current market that have the wind on their backs.
Electronics manufacturer Dixon Technologies for example, has made headlines and grown steadily, as major consumer electronics companies shift their manufacturing from China to India. It is projected by analysts to record an EBITDA growth of 59% CAGR during FY25-27.
Dixon is working hard to take advantage of its golden moment, via acquisitions, and in trying to enter display fabrication - a significant backward integration move, since it manufactures TVs, smartphones and laptops. If this initiative gets approved under the Indian Semiconductor Mission 2.0. Dixon would be eligible for a subsidy covering nearly 70% of its Rs. 25,000 crore expected capex.
We look at similar companies, whose growth outperformance has kept valuations in line. The list includes Nifty players, as well as midcaps and smallcaps across industries that are benefiting from different factors: a growing export niche, government support, new project wins, and so on.
To find the full list of these companies, you can look at this screener. To identify these players, the screener looks at the TTM PEG ratio, which is a stock's PE ratio divided by its earnings growth rate.
When earnings growth is especially high relative to the company's valuation, the PEG will be less than 1, suggesting that the stock may be undervalued relative to its growth. A PEG ratio between 0 and 1 is the sweet spot for stocks. The screener also looks at momentum score, year change and revenue growth.
We discuss some frontrunners below.
Top growing companies are in finance, fertilizers, pharmaceuticals
Among the 137 companies identified, the fastest growing are in a range of industries, with some of the top ones in finance, pharma, fertilizers, engineering and electronics.
Finance is a wide ranging sector, and the firms that turn up in this list include banks, NBFCs, and holding companies. Kotak Mahindra Bank's reasonably strong Q3 performance compared to its peers, has had analysts turn positive on it. Its healthy PEG ratio and its steady net interest margin has made Kotak an attractive bank play for analysts.
Bajaj Holdings' underlying companies Bajaj Finance and Bajaj Auto have delivered growth in recent quarters in a muted market, although domestic sales for the latter have slowed. Exports for Bajaj Auto however, have been surging, and overtook its domestic sales in February.
Sarda Energy is one of the less familiar names in the list, but it has been a steady outperformer recently, with a growth of 120% in share price over the year.
The company has been investing in expanding its coal mining capacity: it's growing fast in a "dirty" energy industry. It has recently won key clearances such as for the Shahpur West Coal Mine, and is expanding into both power plant and solar energy projects.
Avanti Feeds is another player that looks positioned for growth. It hit a five year high today, as I was writing about the stock. Sitharaman's announcement in the Budget to boost the fisheries sector has put wind in its sails.
Rising shrimp demand from both the US and China also has analysts predicting a strong year for the shrimp industry.
GlaxoSmithKline's stellar Q3FY25 performance triggered a surge in investor interest. Profit jumped 5X, and management sounded bullish on continued growth. The company is benefiting from its presence in high growth domestic pharma markets - pediatric and adult vaccines, as well as respiratory treatments. Both these segments are growing sharply as GSK has focused on expanding patient access here.
These players, and Dixon Tech, which we discussed earlier, have held on to their momentum (momentum scores all above 50). Expect for Dixon, which has aggressive growth forecasts, these are at reasonable PE levels.
You know that disclaimer one hears at the end of every MF ad, said at 1.5X speed: 'investments are subject to market risks'? Market upheavals are unavoidable. In the Trumpian era, they may even be more frequent.
But even with volatility, a quieter market is a great time to look at stocks that seemed too pricey during the bull run. While we have picked out six stocks to analyze, the screener has many interesting names.
Screener: Stocks with a strong PEG ratio and good growth in Q3 revenue, profit
Banking & finance stocks have the highest month change and good PEG TTM
In this section, we look for growth stocks from a slightly different angle. We analyze the PEG ratio (trailing twelve months price/earnings (P/E) to growth ratio). We also see how the stocks did in the most recent quarter results, in Q3FY25. This screener identifies such stocks, with a TTM PEG ratio between 0 and 1 and good YoY growth in Q3FY25 revenue and net profit.
The screener is dominated by stocks from the banking & finance, general industrials, pharmaceuticals & biotechnology, realty, and automobile & auto components sectors. Notable stocks in the screener are GlaxoSmithKline Pharmaceuticals, Shriram Finance, Hindalco Industries, Chambal Fertilisers, Cholamandalam Finance, Hitachi Energy India, Union Bank of India, and Go Digit General Insurance.
GlaxoSmithKline Pharmaceuticals shows up in the screener with a TTM PEG ratio of 0.8. This pharmacauticals company also rose 34.3% over the past month. Its net profit and revenue surged by 402.8% YoY and 17.9% YoY, respectively, in Q3FY25, helping to lower its TTM PEG. The company’s revenue increased on the back of volume growth of 11% YoY and a price hike of 3% in the general medicine segment, and a 14% YoY increase in its vaccine portfolio.
Hindalco Industries has a good TTM PEG of 0.2. This aluminium & aluminium products company’s stock price jumped 11.8% over the past month. The company’s net profit and revenue increased by 60.2% YoY and 10.6% YoY in Q3FY25, helping to lower its TTM PEG. An improvement in sales volumes and margins from the upstream (mining and refining) and downstream aluminium (final products) and copper segments drove the company’s net profit and revenue growth.
You can find more screeners here.
