Even as the Indian market has closed its eyes to global weakness and moved ahead in recent weeks, some analysts are “worried” that recession in western nations could be a headwind for the Indian market going ahead.
"Europe and China that are large components of the global economy are not likely to show any good news for the next few months,” said Mihir Vora, Chief Investment Officer at Max Life Insurance, in an interaction with CNBC TV-18. “The US Fed and ECB are very hawkish. These are huge headwinds for global markets. That’s what makes me a bit worried for India also.”
The European Central Bank (ECB) on September 8 raised its policy rates by an unprecedented 75 basis points to deal with inflation in the continent. Another similar hike may also be in the offing during the next policy meeting, the central bank hinted.
Meanwhile, the US Fed has also said it will keep raising interest rates. Numura in a note said the Fed is likely to raise the benchmark rate by 75 basis points this month and a half-point at the November meeting.
Vora said the Indian economy is strong, and the domestic story in short and long term is quite robust. In fact, the growth outlook is even better than what it was ahead of the pandemic, he added.
In such a scenario, sectors that are focused on the local market are likely to do well. He commented on flour sectors that need to be looked at carefully:
Cement
As crude oil prices tumbled in the international market, the cement sector has again got its mojo back. Shares of cement companies zoomed as much as 15 percent during the week, attracting investors.
“The sector surprises on the upside when people start talking about it. It is one of the pure local segment with supply discipline. So, whenever there is a bit of positivity about the local economy, it tends to do well,” said Vora. “It is also supported by data points by real estate and government standing on infra.”
Banks
Banking stocks have been the flavour of the season. Many stocks from the sector are trading at their fresh highs, including SBI and ICICI Bank. However, Vora believes there is still lot of steam left in the sector.
“They are still now outperforming vis-a-vis their pre-pandemic levels. Banks underperformed quite a lot from 2020-21, and it is only catching up. If you compare the valuation, they have not crossed their previous high. Hence there is some valuation support as well,” he said.
Vora prefers private banks over PSU ones, even as he is bullish on a “couple” of big names from the latter group.
IT
The IT sector has been among a few segments where supply has outpaced the demand. This has likely happened because of the global nature of the business. So when, US and Europe don’t do well, IT sector tends to suffer.
Vora underlined that western economy has seen the best of government spending and now there is a good chance that corporate demand for IT services will not be as good as it was during the pandemic.
Auto
Auto sector has also been a standout story in the last few months as demand has come back along with softness in raw material prices. Vora believes the sector is yet to see the peak.
Car and two-wheeler demand has barely come back to pre-pandemic levels. So there should be some steam left as far as demand is concerned. Other tailwinds like crude oil and war material prices are behind us, which makes them further potential driver in the next few quarters.
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