Here are 9 sectors that could hog the limelight as economy revives

After two consecutive quarters of contraction in the GDP data, India has entered into a technical recession, but analysts are not worried. Most global investment banks have upgraded their growth estimates after the September quarter GDP data.

Indian economy recovered faster than expected in the September quarter as a pick-up in manufacturing helped GDP face a lower contraction of 7.5 percent. Indian economy had contracted 23.9 percent in April-June.

Research house Nomura has revised up FY21 GDP forecast to -8.2% from -10.8% and expects RBI to stay on hold through 2021. Morgan Stanley anticipated a positive growth in Q3 versus consensus estimates of contraction.

Experts are of the view that stronger than expected GDP was led by a rebound seen in the manufacturing sector, and if the momentum continues and there are no further lockdown, the recovery process could well continue.

Sectors that are likely to hog the limelight will be banks, NBFCs, metals, real estate, industrial, auto, consumption, capital goods as well as a building material, suggest experts.

“A better than expected rebound in 2QF21 GDP print was mainly led by a stronger rebound in manufacturing segment. We note that a sharp recovery in manufacturing activities was primarily supported by pent up demand,” Binod Modi, Head- Strategy at Reliance Securities told Moneycontrol.

“However, while pent-up demand might be ebbing now, a likely rebound in consumption (witnessed de-growth of 13% in 2Q) is expected to ensure sustained recovery in economic growth and India may reach to the growth trajectory in 4QFY21,” he said.

He further added that Banks and NBFCs are to be benefitted the most with the sustained recovery of economic activities. Additionally, the economic rebound may ensure cyclical like metals, real estate and building materials to see a meaningful rebound.

Equity markets factor positive news well in advance. D-Street factored in recovery in economy and earnings well in advance which helped bulls to push benchmark indices to record highs in November.

For investors who want to make an investment decision should focus on sectors where the earnings recovery will be swift, suggest experts.

“Stocks such as Industrials, Auto and Capital goods are likely to rally as the economy is expected to get back to normal during the second half of next year,” Sanjay Sachdev, Chairman & Managing Director at Freedom Financial Services told Moneycontrol.

Aditya Khemani, Fund Manager at Motilal Oswal AMC told Moneycontrol that he does not see a full-blown recovery in the economy stocks immediately but they look well poised if we take a slightly longer term view as the valuations are very attractive in this pocket from a value investor’s lens.

“Ultimately stock price performance is a slave to earnings and hence one needs to focus on earnings driver for these stocks as that will key to value discovery. For example, cement companies are old economy but we are seeing some revival in the real estate cycle hence higher demand for cement, hence better earnings growth hence better stock price performance,” he said.