The index might not do much in the next six months but if you are placed in the right sectors then chances of creating wealth over a period of time increases, suggest experts.
Nifty50 has rallied more than 45 percent from its low of 7,500 recorded in March to 11,000 now in July. The liquidity wave has not only lifted selected largecaps, but also some small & midcaps stocks in the same period.
The last six months have been nothing short of ‘unpredictable’ or ‘volatile’, but the next six months could lend some stability as hopes of a new vaccine, gradual opening up of the economy, as well as cheap capital (domestic & global) could start the CAPEX cycle, and stimulus package along with sustained global liquidity will support the sentiment.
Earnings have taken a back seat, and now the Street seems to be factoring in a recovery in FY22 as well as FY23. The Indian economy was already on a downward spiral before the COVID outbreak.
“We tend to be more positive for medium-term for India due to 1) sustained lower crude prices, 2) cheap global capital (-ve interest rates in most economies), 3) Lower domestic interest rates, 4) bunching-up of latent demand and revival of capex cycle, 5) possibility of the emergence of India as an alternative to china once the COVID issue settles, 6) sustained global liquidity due to unlimited QE by FED and other central bankers,” Prasanna Pathak, Head of Equity Taurus Mutual Fund told Moneycontrol.
“The expectations of a normal monsoon, the resilience of rural/ Agri economy, and sharp bounce in tier 3 & 4 cities should help in some recovery in the second half. However, if all goes well, FY22 and FY23 may surprise many analysts,” he said.
Liquidity along with hope is something that is driving the market higher and investors should not bet against the tide as long as Nifty50 holds 9000 levels. Investors should look at buying stocks on every dip.
Amit Shah - Head of India Equity Research - BNP Paribas told Moneycontrol that at the start of the pandemic, we had estimated and we still believe that the earnings decline for FY21 will be in the range of 15-25%.
“More than the earnings, the market will look for cues in the commentary from companies and earnings outlook for FY22. We believe March -21 fair value to be in the range of 9600 – 11100, depending on how far the lockdowns get extended. As highlighted earlier, this does indicate that the worse is behind us,” he said.
Well, the index might not do much in the next six months but if you are placed in the right sectors then chances of creating wealth over a period of time increase, suggest experts.
We have collated a list of sectors that are likely to churn out leaders for the next bulls cycle:
Expert: Amit Shah - Head of India Equity Research - BNP ParibasPrivate Banks, consumer staples:
We have been bullish on private sector banks, select tier 2 consumer staples names, IT will be viewed as a safe haven and a hedge to domestic India.
We believe, the downstream energy companies can benefit from global recovery in petroleum demand and also expect the telecom sector to be of interest on back of market consolidation as well as higher ARPUs.
Expert: Prasanna Pathak, Head of Equity Taurus Mutual Fund
Telecom, 2-Wheelers, Metals:
In the short to medium term sectors/ stocks which may be lesser impacted by the COVID situation and maybe the first ones to bounce-back will outperform.
Our preferred sectors are IT, Telecom, Pharma, Agri-related sectors/ companies, two-wheelers, and metals.
Expert: Gaurav Dua, SVP, Head - Capital Market Strategy & Investments, Sharekhan by BNP Paribas
Agri Economy:
As the lockdown unwinds and the economy stabilises, we see a lot of opportunity in the consumer discretionary companies which will see revival in demand and also share prices in certain consumer segments has been beaten down considerably.
Pandemic has a relatively lower impact on rural and Agri economy, consequently, we also see rural demand-driven stocks outperforming in the near term.
Expert: Ashish Chugh, Director, Hidden Gems Advisory
PSUs:
There are lots of PSUs, some being monopolies that are available at single digit PEs & dividend yields between 5 to 10%. Some of these companies fall into the Non-Discretionary category & many not get impacted much.
They are available below Book Value, much below their IPO price & near multi-year lows. However, from the valuations at which they are available, they are definitely not the flavour of the markets. Some of these provide good investment opportunities.
Rural Themes:
Rural markets are the ones that are less impacted due to lockdown & the initiatives of the government to increase farm incomes have led to the revival of demand.
Some sector which could benefit are two-wheelers (look for ancillaries in this space), Building material, Asbestos Sheet, Fertilizers, Agrochemicals, Farm Machinery & Consumer Durables.
The effort should be to look out for reasonably priced growth companies & some of these may be worth considering post Q1 numbers.Defence:
This is a space that offers exciting opportunities & our allocation to the sector could be significantly higher given the geopolitical factors. The obvious names are some of the PSUs which have staged a smart rally of late.
However, there are many smaller ancillaries having their own niches in the space. Some of these could provide good opportunitiesChina Import Replacement Theme:
Atmanirbhar Bharat may see the resurgence of industries where the majority of products used to come from China. We may see discouragement to imports & some entry barriers in those product segments.
Some spaces where India is equally competitive are small Batteries, Building materials/ Ceramic & Vitrified Times, Electricals.
IT & Pharma:
Software & Pharma could be sectors that are less impacted due to lockdown because of COVID. There would be lots of opportunities here but one needs to know his company well, be mindful of valuations & momentum in some of the stocks since most of the pharma stocks have seen a major run-up in the last 2 months.
Though long term potential is good, buy on declines would be a better idea since not all of them make drugs for treating COVID & June quarter numbers may cause a correction in many.
Debt Restructuring/ NCLT Cases:
The IBC Amendment Ordinance 2020 which was introduced for default after lockdown declaration has come as a breather for many companies that were facing difficult times.
Many of such companies may be able to negotiate with the banks and restructure their loans. Some of them can multiply wealth.
However, deep research capabilities would be needed in such cases since many would be high-risk bets and can potentially be write-offs.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.