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The quest for value

There is little value in the stocks of the three main defensive sectors: FMCG, pharma and technology


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The recent turmoil in global stock markets has again brought the search for safe sectors in vogue. There are three primary defensive sectors: FMCG, pharma and technology. FMCG is trading at lifetime-high valuations, so there's no value to be found there. That leaves us with pharma and technology. But here also it is difficult to find value.

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The CNX Pharma index trades at 77 times earnings. That's no value by any account. The most expensive pharma stocks include Piramal Enterprises, at 105 times earnings, GSK Pharma, at 76 times earnings, and Glenmark, at 63 times earnings. The market favourite Sun Pharma too trades at pricey 50 times earnings.

In terms of three-year EPS growth, Glenmark is the most expensive stock, with a three-year PEG ratio of 5.76. Cipla is at 5.5. And Sun Pharma is at 5.27.

Major pharma stocks

Company NameTTM
P/E
1 Y return (%)1M return (%)EPS CAGR-3Y (%)PEG
Piramal Enterprises104.9238.7314.9481.051.29
GSK Pharma75.6922.64-1.2-13.36-5.67
Glenmark Pharma62.5146.711.5710.855.76
Sun Pharma49.9212.810.639.245.4
Lupin40.4449.389.9734.611.17
Cipla35.9114.235.756.575.47
Cadila Healthcare34.8758.38.0226.961.29
Dr. Reddys Lab32.2646.269.5915.042.14
Divis Laboratories31.7726.7-1.2414.732.16
Aurobindo Pharma29.5372.3813.14143.140.21

The IT Index, at 22 times earnings, is cheaper than the pharma index, but value there is similarly found wanting. Info Edge is the most expensive tech stock, with a P/E of 52. Just Dial trades at 51. Oracle is at 30. And the market leader TCS is at 23 Info Edge and Tech Mahindra are the most expensive in relation to their three-year earnings.

Amidst heated valuations, tech does offer some pockets of value: Infosys trades at a TTM P/E of 20. HCL Tech trades at 17. And Wipro is available at 16.

The two tables illustrate the lack of value in the pharma and the tech sectors.

Major IT stocks

Company NameTTM
P/E
1 Y return (%)1M return (%)EPS CAGR-3Y (%)PEG
Info Edge52.31-4.821.738.775.96
Just Dial51.03-38.238.6127.511.85
Oracle Fin. Services29.7923.476.32-7.92-3.76
TCS23.362.62-2.518.411.27
Mindtree22.0447.232.4222.750.97
Infosys2016.710.6810.981.82
Tech Mahindra19.51-5.62-3.597.012.78
HCL Technologies16.7314.52-9.234.960.48
Cyient16.6818.1-4.6618.550.9
Wipro16.323.77-2.5314.371.14

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