Can better than expected FY21 GDP numbers boost market's mood? These sectors to come in focus

"Because of massive subsidy payments, real GDP growth was 1.6 percent YoY, better than our/market forecast of 0.6 percent/1 percent. It implies a fall of 6.2 percent/7.3 percent in real GVA/GDP in FY21," said Gupta.

Shot in the arm

At a time when states have started to ease restrictions as COVID-19 cases fall, analysts believe positive surprise on the front of GDP could bolster the hopes that India may not let growth falter much.

Mohit Ralhan, Managing Partner and Chief Investment Officer, TIW Private Equity pointed out that the second wave of COVID-19 now appears to be subsiding and with the vaccination drive in full swing, India is likely to regain the growth momentum.

"The eight core industries have also bounced back in April on expected lines with cement and steel being the leaders. The data suggests a higher likelihood of broad-based demand revival from here on and achieving double-digit growth in FY-22 looks extremely possible," said Ralhan.

"The government has also been steady on the reforms front including sectors such as agriculture, mining, manufacturing and power, which augurs well for the economy in the long-term," he said.

The GDP numbers have come out to be better than expected, indicating the positive momentum of economic revival, before India was hit by the second wave of the COVID-19 pandemic.

"The better than expected GDP data will have a positive bearing on the RBI credit policy scheduled later this week. We expect the growth rate to pick up on the back of latest relief measures announced by the government, phased unlocking by states, normal monsoon, high vaccination and lower number of new cases," said Nish Bhatt, Founder & CEO, Millwood Kane International.

Bhatt, however, believes that the growth rate for the April-June quarter will be weak due to the lockdown on trade and business activities for the most part of the quarter.

Gaurav Garg, Head of Research at CapitalVia Global Research believes the market has already factored in current economic conditions and might take the GDP data as a non-event.

The market has seen a good consolidation phase over the last couple of months and hit an all-time high level again.

"Both global, as well as domestic cues, are positive and with lockdown restrictions going away in various states, the market will be in a positive mood. Investors should try and create a long position at every correction as Nifty50 is expected to reach 16,000 in the next 2-3 months," Garg said.

Vinod Nair, Head of Research at Geojit Financial Services is of the view that the fourth-quarter GDP data is unlikely to provide the next lift to the equity market because it is moving in anticipation of robust economic growth to substantially rise from Q1FY21 onwards, due to fall in COVID-19 cases, pent-up demand and stimulus.

Deepak Jasani, Head of Retail Research, HDFC Securities is of the view that the Q4FY21 GDP data seems better than expectations and hence will be neutral, if not bullish, for the equity markets in the near term.

"Though everyone realises that the estimates for Q1FY22 GDP have been scaled down and may even be sequentially lower than Q4FY21 due to the second wave of COVID (and seasonality wise also historically Q1 is not as strong a quarter as Q4), the positive news would prevail for now," said Jasani.

The market is focusing more on the performance of listed corporates (which have done far better than that reflected in GDP growth numbers) and to that extent may even tend to ignore the news totally.

Sectors that may benefit

Economy-centric sectors are likely to do well as India witnesses normalcy in months to come.

Binod Modi, Head Strategy at Reliance Securities said the sectors that are considered to be beneficiaries of capex revival in the country are expected to do well in the coming months.

"Financials, infrastructure, cement, capital goods, select auto and industrials are expected to outperform in FY22," he said.

Nair believes banks, auto and ancillaries, industrials, metals and energy sectors may be the top beneficiaries of economic growth.

Garg of CapitalVia Global Research believes the economy-centric stocks might be important as far as this rally is concerned which might lead the index to go even higher and touch levels of beyond 16,000.

He added that the rate-sensitive stocks might play an X-factor role which includes automobiles, financial services, real estate, etc. where traction might be seen as RBI is expected to keep the rates unchanged and
demand recovery might happen after the unlocking phase starts.

"Stocks like Maruti, HeroMoto Corp, Eicher motors look good as they have corrected well from their 52-week highs and might get benefited due to reopening of the economy. HDFC, Muthoot Finance, L&T Finance looks promising to me as well," said Garg.

The economy-centric companies may continue to do well as the economic recovery could gather pace (once the second wave of covid comes to an end soon), said Jasani.

"Markets will continue to discount the return to normalcy scenario for most companies and may hence ignore the near-term negatives unless this period stretches far longer than expected. We are positive on a whole host of sectors including oil & gas, financials, capital goods, select pharma and chemical stocks and IT space," said Jasani.

Vinit Bolinjkar, Head of Research, Ventura Securities named 5 stocks that can be beneficiaries of unlocking and economic growth.

1. L&T: He believes that the company can do well given that it is a giant in infra space in India and given working capital issues being faced by many small infra companies, L&T is placed in an advantageous position to win orders at the right margins.

"One can definitely buy given that it is available at decent valuations of 18 times FY22," said Bolinjkar.

2. ICICI Bank: "We have a buy rating on the stock with a price target of Rs 805 (2.2 times FY24 core business) as the quality of corporate lending has improved in ICICI Bank," said Bolinjkar.

3. Grasim: "We like Grasim although we don’t have active coverage on the same. We believe that unlocking can help the textiles and the garment business. The recent buzz on IPO of AB Capital’s mutual fund division will provide cushion to the stock price in the near term," Bolinjkar said.

4. MGL: One can also look into MGL as volumes can rise from hereon once unlocking happens. Also, the stock seems undervalued at 14 times FY22, Bolinjkar pointed out.

5. Godrej Consumer: He is bullish on the company's new CEO given his extensive experience at HUL.

"Consumer companies can benefit from the rise in spending post unlocking phase and hence at 23 times FY23 EV/EBITDA, it definitely warrants attention," said Bolinjkar.

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.