Even though the economy will take time to get out of the woods completely, the recovery seems to have started.
Moneycontrol tracker shows signs of improvement. The weekly indicators show an uptrend in mobility as unlocking gathers pace and people go out to shop.
On the monthly data front, bank credit growth rose to a level last seen in July 2020 and if this is sustained then it’s a healthy sign.
Moreover, the government is reportedly working on a fourth stimulus package to be unveiled before Diwali which is expected to give a boost to consumption.
Some high-frequency key economic data suggest an economic revival, mainly supported by pent-up demand and refilling of channel inventories.
Given the improving recovery rate of COVID-19, constant improvement in labourers and gradual opening up of the economy in a broader way indicate that worst is behind now.
Industry body PHD Chamber of Commerce and Industry(PHDCCI) believes that the worst is over and the economy is on the verge of a slow recovery.
The pace of recovery may be slow but most analysts and rating agencies believe that the Indian economy will see a strong rebound in the year 2021.
How can an investor reap the fruits of economic recovery?
Over the last few months, the defensive sectors like IT, pharma and FMCG have outperformed the economy-driven sectors.
Analysts expect the economy-driven sectors to take the lead, going forward.
"As the economy recovers, we expect some mean reversion and outperformance to come from the economy-driven sectors. Next year, when the economy goes back on track, these economy-driven sectors will come in the front seat and the defensives could take a back seat," said Rusmik Oza, Executive Vice President and Head of Fundamental Research-PCG, Kotak Securities.
Oza emphasized that most of the economy-driven sectors are highly prone to any correction in the Nifty. Hence, the ideal strategy to add stocks in these sectors is to accumulate them over the next two quarters with a 2 to 3-year view.
Stocks & sectors to bet on
As per Oza of Kotak Securities, there are seven sectors that are still 20-28 percent away from their 52-week highs.
These are Banking, Capital Goods, Metals, Oil & Gas, Realty, Telecom and Utilities (both gas and power).
"The potential one-year upside in stocks falling in these sectors ranges between 23-35 percent. Stocks falling in the mentioned seven sectors that are worth accumulating over the next two quarters are: Axis Bank, ICICI Bank, L&T, Bharti Airtel, Hindalco, Jindal Steel & Power, BPCL, IOC, GAIL, Mahanagar Gas, Petronet LNG, CESC, Power Grid and Tata Power," said Oza.
Roop Bhootra - Executive Director Investment Services, Anand Rathi Shares and Stock Brokers recommends buying Ultratech Cement (target price: Rs 5,210), HCL Technologies (target price: Rs 931), Sequent Scientific (target price: Rs 193), Dr.Reddy's Laboratories (target price: Rs 6,012), Divi's Laboratories (target price: Rs 3,640), Nestle India (target price: Rs 18,710) and Central Depository Services (target price: Rs 563).
Binod Modi, Head - Strategy at Reliance Securities advise to focus on quality plays where earnings recoveries are more certain.
"Pharma, IT, Building Materials, Automobiles & Ancillaries, and Agrochem offer better earnings visibility in the ensuing period," Modi said.
One needs to keep the fact in mind that the market has already risen sharply after the March fall and a sharp earnings improvement is needed to support current valuations.
"Domestic market is expected to be a bit more volatile in the coming days ahead of the presidential election in the USA and spike in coronavirus cases in many nations. Hence, investors are advised to stick to quality stocks with a healthy margin of safety," said Modi.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.