While the latest GDP data showed that India is in a technical recession, but visible green shoots in the economy triggered risk-on sentiment on D-Street.
The recently-concluded Monetary Policy Meeting (MPC) kept key policy rates on hold but acknowledged signs of recovery in the economy. The central bank expects the economy to contract by 7.5 percent. RBI had earlier projected a contraction of 9.5 percent.
Shaktikanta Das observed that there were nascent signs of recovery seen in the second half of FY21. He expects Q3 FY21 growth at 0.1 percent and Q4 at 0.7 percent.
Agriculture and electricity were the bright spots during the quarter registering a growth of 3.4 percent and 4.4 percent YoY respectively. And, the trend is most likely to continue.
“Looking at the high-frequency indicators post-September we expect the economy will continue to improve further in the third and fourth quarter. The Manufacturing PMI for November has come in at 56.3 as compared to 58.9 for October and points to continued improvement in the manufacturing sector,” Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd told Moneycontrol.
“Service PMI at 54.1 for October was the first reading above 50 since March and points to green shoots in the services sector. We expect economic growth to accelerate further in Q3 driven by festive demand and the opening up of the services sector,” he said.
Experts advise investors to stay with economy-related sectors as well as financials along with IT, pharma, as well as auto which are likely to hog the limelight as the economy gains momentum.
“Infrastructure is expected to witness a significant order flow due to the government’s thrust on better road and rail connectivity. It would further improve demand in cement, metals and capital goods industries,” Vinit Bolinjkar, Head of Research, Ventura Securities told Moneycontrol.
“Besides, we are expecting automobile, IT, telecom, pharma and financials to report better numbers, while FMCG and consumer durables could show 100% recovery in financials,” he said.
We have collated a list of stocks from various experts that are likely to benefit the most as the economy recovers:
Expert: Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd
We expect the rally in cyclical sectors to continue, we expect the recovery to be uneven with different sectors charting out different recovery paths.JK Lakshmi Cement:
In the cement space, JK Lakshmi Cement is our top pick given the strong demand outlook and cheap valuations.
It is our top pick in the consumer durable space given the increased demand for the company’s products due to the proliferation of work from home.
Page Industries & Swaraj Engines:
Page Industries is our top pick in the consumer discretionary space while Hero MotoCorp and Swaraj Engines are our top picks in the Auto & Ancillary space.
Expert: Vinit Bolinjkar, Head of Research, Ventura Securities.
In infra, we are bullish on L&T, while in cement ACC is our top bet. Other stocks such as IDFC First Bank and Godrej Consumer are the valuation play in their respective sectors.
We believe that the stock of ACC is well poised for a re-rating given the strong expected earnings growth and improved profitability emanating from the economic recovery, well-timed expansion, cost-cutting measures, and benign valuations, and healthy cash pile.
IDFC First Bank:
IDFC First Bank Ltd (IDFCFB), post-merger, has finally got its act together and is well-positioned to benefit from the opportunities arising out of an under-penetrated market and market share gains, from peers that are struggling.
The loan book is set to grow at 15.7% CAGR to Rs 1,32,665.3 crore by FY23 driven by faster growth of its retail book to Rs 1,11,933 crore (25% CAGR) and a flattish trend in corporate advances.
Over the period FY17-20, the performance of GCPL had been lackluster. Revenues grew less than 1% CAGR while the earnings grew by a mere 4.7% CAGR given flattish growth of the Indian market dented by the poor performance of the Household Insecticides (HI) segment.
The management was slow to react to the rapidly changing trends in the hair styling segment in the African market.
It grew at a slower pace of 5.1% CAGR to Rs. 2,316 cr over FY17-FY20C. FY20 global performance was impacted by the onset of the pandemic.
Expert: Gaurav Garg, Head Research, CapitalVia Global Research Limited - Investment Advisor.
The recovering economy is expected to fuel the domestic demand of two-wheelers and therefore an upside potential of 10%-15% can be seen.BPCL:
With the return of normalcy, the demand of fuel is expected to grow both retail and industrial and therefore an upside of 10% can be expected.
The construction and Infrastructure segment is expected to resume once the pandemic situation comes under control and with economic recovery, this seems to be a lucrative opportunity with an upside potential of 15%
With the restoring of normalcy and reducing travel restrictions, the Aviation sector is expected to come back to pre-COVID levels and an upside of 11% can be seen here.Disclaimer
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