ABB, HAL, Raymond, Rain Industries among value buys despite the run-up in market indices


by 5paisa Research Team Last Updated: Nov 21, 2022 - 12:19 pm 9k Views

The Indian stock market indices have retraced their steps after trying to test the previous high logged a year back.

In a bull market, it’s easy to be swayed by a herd mentality to look for growth stocks. But as concerns of valuations in the market grow, investors start looking at alternative investment themes such as value investing.

On the flip side, when the markets are flush with liquidity, it is still important to identify value stocks, which refers to shares of firms that appear to trade at a price below what is suggested by its fundamentals, such as earnings, revenues and dividends.

One way to gauge a set of such companies is to scan them through the lens of the Piotroski score, named after Chicago accounting professor Joseph Piotroski, who created the scale. The parameter covers aspects of profitability; leverage, liquidity and source of funds besides operating efficiency.

Companies are awarded scores for sub-parameters under each of these three broad heads including one point each for positive net income, positive return on assets (ROA), positive operating cash flow and cash flow from operations being greater than net income.

It also captures lower amount of long-term debt in the current period, compared to the previous year and similarly higher current ratio this year and whether or not any new shares were issued in the last year to get a picture of dilution.

The score also picks one point each for a higher gross margin and higher asset turnover ratio compared to the previous year.

In total, stocks are weighed on these nine sub-metrics with higher score making it a more attractive value stock.

Typically, stocks with scores of 8-9 are considered the most lucrative from a value investing theme.

Based on this criterion, we get a list of 25 stocks among Nifty 500 that score high on the Piotroski’s scale currently. This is over a third less than 39 stocks that appeared under-priced three months back and still lower than the 58 stocks that appeared attractive early this year.

This set incudes names like ABB India, Hindustan Aeronautics (HAL), Bharat Dynamics, Raymond, Rain Industries, Oil India, Gujarat Narmada Valley, Godfrey Phillips, JK Paper and Ambuja Cements.

Others in the group include Greenpanel Industries, Suven Pharma, Gujarat Ambuja Exports, United Breweries, Tata Consumer, 3M India, Triveni Turbine, Brigade Enterprises, Asahi India Glass, Pfizer, Narayana Hrudayalaya, Kalyan Jewellers, Container Corp, Hindustan Zinc and Hindustan Copper.

Some of the stocks that had slipped out of the pack over the last three months include Allcargo Logistics, Century Plyboards, GAIL, GIC, GMM Pfaudler, Indoco Remedies, IRB Infrastructure, JSPL, Minda Corp, NBCC, Network 18 Media, Phoenix Mills, PI Industries, Shipping Corporation, Sobha, TV18, Uflex, Welspun India and Zee Entertainment.

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