Indian stock markets are trading at record highs, with the BSE Sensex above the 58,000-point mark and the NSE above 17,000 for the first time on expectations of a strong economic recovery, abundant liquidity and positive global cues.
The rally is being driven by buying in information technology, consumer packaged goods, metals and realty stocks. Banks have so far stayed out of the rally.
Indian markets have outperformed Asian peers so far this year. The Nifty Midcap 100 has scaled new highs post a sell-off in August, touching the 29,000-point mark. Of late, blue chip stocks have participated in the rally with Reliance Industries leading the pack. Nifty is at present trading at a price-to-earnings multiple of 26.60x against 19.38x at its March lows.
After such a strong performance, we expect the markets to cool a bit before the next leg of the rally. We advise investors to book partial profits if their targets have been met; otherwise, remain invested. Traders are advised to maintain a strict stop-loss on their positions. Investors can use a “buy on declines strategy" for stocks that are doing fundamentally well and have a potentially great future.
We expect the banking and automobiles sectors to perform well. The former has been consolidating and is expected to benefit from an economic recovery. Automobile stocks have corrected recently because of a crisis over a shortage of microchips; we feel the problem is temporary and the sector is expected to bounce back strongly once the crisis is resolved. Automobiles stocks are also expected to benefit from the electric vehicle play.
Here are three top picks for strong returns:
Kotak Mahindra Bank
The stock is consolidating in the Rs 1,700 to Rs 1,850 range since March 2021. Recently the bank sold a stake in Airtel Payments Bank. We expect the stock to reach Rs 2,050 levels.
Mahindra & Mahindra
Considering the current chip shortage and a drop in production estimates, the stock has corrected more than 20 percent since highs of February. The company recently launched its XUV700, which has created a buzz in the market.
We don’t expect the chip shortage to continue for a long period and this dip should be considered an opportunity to add this gem.
The company is the market leader in the two-wheeler segment in India. It has recently launched its first electric vehicle. The stock has corrected more than 20 percent from its February high. We recommend a buy on this counter with a target price of Rs 3,650.Disclaimer: The views and investment tips expressed by the investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.