In an interview to the Press, Prashant Jain CIO of HDFC AMC said that Refineries, Utilities and Realty Stocks are the Most Expensive in today’s market.
I think there are better choices of label than the utility space at the current valuations and if one looks at the largest utility in the country and if one puts it along side the largest bank in the country both businesses are similar in terms of RoE what they earn. Both earn or give or take around 15 to 17% RoE.
So, whether the utilities may or may not fall they may actually drag over time for a number of years. But when two very similar businesses with similar ROEs and with similar growth prospects, the gap in valuations is 100% and to my mind it is not sustainable.
So investors of Reliance Power Ltd be ready to cash in on listing as Anil Ambani has 25% free float which is not locked in and you know what the ambanis can do 🙂
On Refinery Stocks,
Today refineries are somewhat like what Cement was like one year back. The refineries are a cyclical business, and currently the refining margins are very high. But I don’t think they will sustain beyond 1-2 years. And when one starts valuing cyclicals at peak cycles of 2X-4X replacement costs, I think the upside over the long-term is really not there.
Book some profits if you are in these sectors – suggestion for medium to long term investors.