Hold it, wait for bigger correction to buy quality stocks, say experts

"After such a large and consistent rise from the bottom of November 2020, one can wait for more correction unless one is very light on equities at this point," said Deepak Jasani, Head of Retail Research, HDFC securities.

There was uncertainty surrounding the market and the larger economy following the fresh outbreak of infections, he said. "While Q4 results are expected to be good, one is not sure as to whether corporate earnings projections for FY22 will be met if COVID-19 keeps resurfacing every now and then," Jasani said.

Likhita Chepa, Senior Research Analyst at CapitalVia Global Research advises avoiding longs unless the Nifty surpasses 14,900 convincingly.

"With increasing COVID-19 cases and rising commodity prices, investors look worried globally. Therefore, it is advisable not to make any fresh longs until the Nifty gives a decisive breakout above the level of 14,900. Investors should stick to a stock-specific approach and maintain a cautious stance," Chepa said.

On technical charts, too, the market is indicating signs of weakness.

"Technical factors are aligned to support a short-term consolidation in the near future followed by an attempt of a breakout above the 14,900, sometimes mid of the month," said Ashis Biswas, Head of Technical Research at CapitalVia Global Research.

"As the immediate support is visible at 14,440, the market expects any corrective wave-down to find support around 14,400-14,450. As such, the traders are advised to refrain from building a fresh buying position until the market witnesses a correction to the 14,450 or a breakout above 14,900," said Biswas.

What to buy?

Chepa said the construction sector may be one of the top gainers in FY22 on the back of an increased focus on infrastructure spending.

"Strong allocations in the Budget 2021 for FY22 and government's focus on increasing construction pace in road projects, electrification of railway lines and commencement of dedicated freight corridor projects in FY22 are expected to bring in higher-order inflows to the sector," Chepa said.

The auto ancillary sector, too, is expected to post strong growth this year as the recovery has been visible since the third quarter of the last fiscal.

"The growth is expected to be driven by both domestic original equipment manufacturers (OEMs) and exports. Better operating leverage and leaner cost structure carried over from FY21 are expected to propel margins despite raw material price headwinds and supply chain disruptions," she said.

"Also, the PLI scheme and vehicle scrappage policy can create competitive advantages and growth opportunities for the segment in the medium to long-term," she added.

Abhishek Karande, Senior Research Analyst-CMT at Reliance Securities, is of the view that in the current scenario, cement and IT could possibly outperform on an absolute basis.

"In the cement sector, JK Lakshmi, Shree Cement and ACC are gearing up for fresh higher moves from the current levels and could possibly post approximate return of 15 percent to 20 percent by the year-end. In the IT sector, Infosys and Tech Mahindra continue to remain positive and are expected to post an approximate return of 15 percent by the end of the year," Karande said.

In FY22, sectoral gainers could include PSU, automobiles and FMCG, Jasani of HDFC Securities said. These sectors have been late in rising and are yet to see sufficient upside based on the emerging situation in their spaces, he said.

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