After the recent sell-off, the market could rebound swiftly or enter a longer corrective phase. At these elevated valuations, it pays to get selective.

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Never buy into a business looking at the Nifty or the Sensex. At any point in time, there are stocks commanding lofty valuations, and there are several others being overlooked and going cheap. It pays to get stock-specific once a bull run has entered a relatively mature phase.

And don’t get drawn in by sector rotation moves, unless you are a nimble trader: that’s a different playground where the big players behind the moves make the most money.

Heavies vs midcaps

There’s been a lot of talk about heavyweights vs midcaps in the recent past. The answer for the relative outperformance of the large businesses compared to their middling peers on the bourses isn’t hard to find.

A glance at the performance of the BSE-Sensex vs the BSE-Midcap 400 index reveals all:

While large and small-cap stocks moved at an even pace through April, midcaps stole a big march over their larger set over the next three months. And now that exaggeration is being corrected—with large caps gaining and midcaps easing.

In valuation terms too, the market isn’t cheap anymore. Though not nearly as expensive as at the peak of the 2000 bubble, and still way cheaper than in the 2007-08 rally. So, we may still have some room to expand multiples, provided performance supports.

But the relative picture of midcap and large-cap valuations suggests the mid-tier companies may have garnered more affection than warranted given that in most instances the larger peers would score on business strength, financials and governance.

A correction of the distorted market seems to be underway now. And that along with a churn within the large-cap pack can throw up opportunities for the disciplined investor.

Also Read | What not to do during a market correction

Sifting for value

Are there still stocks available at comfortable valuations in the market today? To answer that question, we sifted through data of BSE-500 companies to zero in on some that still offer a healthy operating and free cash flow yield—cash flows expressed as a percentage of market capitalisation. And we were surprised to find some prominent names in the pack. Here’s a short list of a select few:

Do note, this is not a list of recommendations. It simply lists companies based on the parameter. Some of these players may be facing specific challenges that may justify the current valuations.

After all, these numbers are based on historical achievements, not future delivery. That said, the moot point is that if you look for value in today’s market and separate the wheat from the chaff, there are winners still that you can add to your portfolio.

But do your homework well. What you earn on your investments is determined by your choices. Choose wisely.

Also Read | Metal, PSU bank stocks push Nifty50 into weekly loss; FMCG pack bucks trend

(Edited by : Santosh Nair)