Which stocks to bet on as Sensex hits all-time high? Indiacharts' Rohit Srivastava shares his strategy

Rohit Srivastava, founder, Indiacharts.com

As Sensex hit fresh all-time high of 63,588.31 on June 21, Indiacharts' founder Rohit Srivastava believes defence, capital goods, manufacturing and industrials will lead from the front.

"Defensives like FMCG and pharma which were the leaders in the last ten years have now taken a backseat. The change happened over 2020-2021. New sectors emerged as leaders during this time and they will now continue to propel markets higher," he said in an interview to Moneycontrol.

Also Read: Short-term pullback likely; Nifty could test 18,400 level: Indiacharts' Rohit Srivastava 

The government has been aggressively ramping up capital expenditure spend. It increased capex outlay by 37.4 percent in budget estimate (BE) for FY24 to a whopping Rs 10 lakh crore.

On the back of this, order flows in industrial companies have increased, with year-on-year growth of over 15 percent from the pre-pandemic lows of 5 percent, as per foreign broking firm Jefferies.

Stocks like HAL, L&T and Bharat Electronics have gained over 200-400 percent from 2020 COVID-19 lows.

Are valuations comfortable?

The rally in capex-oriented stocks over the past three years might have stretched valuations to 'uncomfortable' levels compared to the historical average, but Srivastava is not too perturbed.

"For instance, Hindustan Aeronautics' price-to-earnings ratio is over 20x. Its earnings per share growth is more than 20 percent year-on-year. This means its PEG ratio is around 1, so it is not that expensive," said Srivastava.

PEG is P/E ratio divided by the company’s earnings growth rate.

"The valuation argument is tougher for maybe FMCG stocks that did very well in the last decade. But right now, some of them are trading at 80-90x P/E ratio while earnings are growing at a much much smaller pace. Then, is that a sector you should be invested in," he explains.

What about banks?

Like the majority of the Street, Srivastava too is positive on banks on the back of cleaner balance sheets and low levels of non-performing assets. That said, he does not believe banks can outperform the stocks linked to the Make in India theme.

"Investors should not look at the entire banking basket. They should be more selective in picking the stocks," he said.

The mega bull market

Srivastava believes the period between October 2020 and March 2023 will historically be characterised as an 18-month consolidation phase inside an ongoing bull market. The entire decline at 18.30 percent from high to low is not large enough to be classified as a major bear market.

"Currently, we are in Wave 3. The first wave was in 2020 when markets rallied from 8,000 to 18,000. Then, in Wave 2, we went through an 18-month long consolidation, which lasted till March 2023," he said.

Srivastava expects the index to double in this wave, similar to Wave 1. That means a target of 35,000 on the Nifty 50 over the next 2-3 years.

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