The Sensex has rallied about 6,000 points in just seven months to hit a high of 56,118, while the Nifty surpassed 16,700 for the first time earlier this month. As the benchmark indices continue to scale new heights, a close look at sectoral performances suggests that metals have played a big role in pushing the market higher.
The S&P BSE metal index has risen more than 70 percent since January 21— when the Sensex went past 50,000—followed by Utilities (up 34 percent), power (up 27 percent) and industrials (up 27 percent).
On the broader markets front, the S&P BSE midcap index has gained 21 percent and the smallcap 40 percent since January 21, outperforming the benchmark indices.
Experts are of the view that metals, IT and healthcare will continue to lead the next leg of the rally on D-Street. Investors can from these sectors that can outperform.
Sectors related to the domestic economy such as banking as well as cement are looking attractive as well.
“The Nifty Bank has underperformed for the last many days as compared to Nifty and has traded in a range but the Nifty Bank has been trading above 21&50 DMA (daily moving average), which suggests strength for the upside,” said Sachin Gupta, AVP, Research, Choice Broking.
The Nifty Infra and cement sector is also trading with higher high and higher low formation, which suggests northward direction in the sector, he said.
“We are expecting a good upside rally in banking, metal, infra and cement sector for upcoming trading sessions, which will drive the Nifty further,” Gupta said.
We spoke to Mohit Nigam, Head-PMS, Hem Securities, to help us pick sectors that could lead the next leg of the rally:
Metals
Since January 2021, the Nifty Metal index has outperformed all other indexes and gained by 75 percent. Major contributors to the rally are Tata Steel, APL Apollo Tubes, JSW steel, and Hindalco.
Metal stocks have seen a rally by estimates of record growth in domestic demand plus China putting export curbs on metal over green concerns. Moreover, infrastructure projects continue to provide lucrative business opportunities for steel, zinc, and aluminium producers.
IT
Since January 2021, the Nifty IT index has gained 38 percent and major contributors in the rally were Majesco, Happiest Minds Technologies and Brightcom group.
The Covid-19 pandemic added a spark to existing trends as people shopped from home and sought entertainment from OTT platforms. IT companies have benefitted from this trend.
We are bullish on the IT sector because of the strong demand environment, improving visibility, sustained margins and improving free cash flow.
Healthcare
Healthcare was one of the top-performing sectors of 2020. It has continued to do well in 2021 as there is an ever-increasing demand for life-saving drugs and immunity-boosting supplements.
Of late, people have been focusing more on buying healthcare products. With vaccination drive in full swing, there is a good opportunity for pharma companies as India looks forward to various types of vaccines.
Chemicals
The rise in demand from end-user industries such as food processing, personal care and home care is driving the development of different segments in India’s specialty chemical sector.
The domestic chemicals sector’s small and medium enterprises are expected to showcase 18-23 percent revenue growth in FY22 on improved domestic demand and higher realisation due to high prices of chemicals.
Capital goods
Traction in capital goods could be seen this year with the help of the government’s several ambitious programs like Make in India, PLI Scheme, National Infrastructure Pipeline and the Budget’s focus on infrastructure and capital goods.
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