There’s little consensus on where to invest in India, as stocks bounced back to bull territory and valuations are no longer dirt cheap.

The benchmark S&P BSE Sensex Index has rebounded 14 per cent in April, after suffering its worst quarter on record. The gauge is trading at 17 times estimated 12-month earnings. While it is still below its five-year average, the index is up from 12.2 times toward the end of March.

Some investors expect the gradual recovery to continue, fuelled by anticipated fiscal stimulus. Others are braced for another sell-off if data on the spread of the coronavirus in India worsens.

Market participants often have diverging views on stock investments, but the uncertainty over the length and severity of India’s lockdown is making it more difficult than usual to analyse how much of the negative impact has been priced in.

Those expecting the economy to restart soon see value in industries linked to output growth, while investors with a more cautious view back defensive sectors such as pharmaceuticals and consumer staples that have had a boost during the lockdown.

“The drop in valuations does reflect at least 12 months of weak economic activity and a slower recovery, but the positives of lower crude oil, interest rates and inflation can’t be forgotten,” said Sailesh Raj Bhan, deputy chief investment officer for equity investments at Nippon India Mutual fund. “It is only in bigger problems that one finds big opportunities.”

Here is a look at how investment views diverge on three sectors:

Banks

“We see a problem for banking as asset quality issues and credit costs surge going forward, so many of these businesses will suffer,” said Akash Singhania, a fund manager at Mumbai-based Motilal Oswal Asset Management Co. He cut his Motilal Oswal Multicap 35 funds banking investments to neutral in March, from overweight.

Morgan Stanley India, on the other hand, recommends buying banks, based on calculations that the financial sector overall will cope despite the Covid-19 related rise in non-performing loans, and because lenders are now available at lower valuations after a plunge so far this year.

Consumer

Amnish Aggarwal, an analyst at Prabhudas Lilladher Ltd., suggests investors need to be picky within the sector. Loss of income for workers and lower remittances sent home along with supply chain disruptions will have a significant impact on sales and profitability in the first half of the year, he said in a note. Aggarwal has a hold rating on consumer goods maker Hindustan Unilever Ltd, which will report earnings on Thursday.

“With little clarity about how and when different parts of the economy will open, consumer staple companies still offer investors an idea about what sort of profitability and business growth they can expect, in contrast to sectors such as infrastructure and automobiles which will see massive de-growth,” said Jinesh Gopani, head of equities at Axis Asset Management Ltd.

Pharmaceuticals

Indian pharmaceutical companies had a lot of issues with the US FDA. After the crisis hit, there were several approvals for plants to reopen, Gopani of Axis Asset Management said. While that is boosting the industry overall, long-term performance would be more stock specific, depending on which companies could prove more innovative and partner with global pharmaceutical firms, he added.

Jefferies India Pvt analyst Piyush Nahar, however, believes most pharma stocks are now trading well above historical valuations. The BSE Healthcare index has surged 27 per cent in April, the best month ever and well exceeding the gain in the Sensex. The structural risks (FDA, generic price erosion, narrower margins led by quality costs) still remains in our view, he wrote in a note in late April.