The Indian equity market has been witnessing bouts of volatility as rising bond yields and concerns over inflation triggered profit-booking. The market witnessed strong selloffs and strong buying in February, which indicates the cautious mood of the market.
While inflation is not seen as a concern for the Indian market at the current juncture, the rising bond yields could be a cause of concern for the short-term investors as FPIs might prefer US markets over Indian equities, which would depreciate our currency and, in turn, strengthen the dollar.
The market will closely observe the movement of bond yields and will react to global cues in the short term. However, the undertone of the market remains positive and most brokerages and market experts are bullish on Indian equities.
As reported by CNBC-TV18, brokerage firm Axis Securities has raised December 2021 Nifty target to 17,200 on strong December-quarter earnings, solid structural trends, continued FII inflows and a positive market sentiment.
Jyoti Roy, DVP Equity Strategist at Angel Broking, is also bullish on Indian equities from a medium to longer-term perspective.
"While short-term volatility cannot be ruled out, we continue to remain positive on Indian equities from a medium to longer-term perspective given the strong earnings growth recovery in FY2022," said Roy.
The encouraging earnings of India Inc are likely to sustain and will be a big boost to market sentiment.
Talking to CNBC-TV18, Vaibhav Sanghavi, Co-CEO at Avendus Capital Alternat, underscored earnings growth to catch up steam and markets to follow it.
"Even though we may not see a further PE rerating on the higher side but the earnings story would catch up steam and probably you may see the markets following the earnings growth going forward," he said.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, believes FY22 may witness around 12 percent GDP growth and above 30 percent earnings growth due to the base effect.
"If we can sustain good growth in GDP and earnings, beyond FY22, this bull will have more legs to run. However, there will be many bumps on the road, with a major bump emerging when the Fed starts tapering," he said.
Areas of opportunities
Analysts and market experts are of the view that the correction in the market should be used to buy quality stocks in sectors that look attractive from the medium to long-term perspective.
"Given continued rebound in high-frequency key economic indicators in February 21, we believe underlying strength of domestic equities remains intact. Likely pick up in capital expenditures in FY22E and impact of new reforms announced in the Budget to stimulate consumption activities should continue to support an ongoing rebound in corporate earnings. Hence, we continue to believe that any meaningful correction in the market should be an opportunity to buy as India continues to offer superior growth prospects," said Binod Modi, Head Strategy at Reliance Securities.
Market analysts and brokerages are positive on select sectors. We have collated a list of sectors on which they are positive. Take a look:
1 Binod Modi, Head Strategy at Reliance Securities
Infrastructure, industrials, engineering, building materials, banks, select auto stocks.
2 Pankaj Pandey, Head of Research, ICICI Direct
IT and pharma.
3 Rusmik Oza, Executive Vice President, Head of Fundamental Research, at Kotak Securities
Insurance, banking, infrastructure/construction, FMCG, utilities (both power & gas), metals.
4 Deepak Jasani, Head of Retail Research, HDFC Securities
Metals, chemicals, engineering/capital goods, mid-sized NBFCs, sugar, paper, etc. "Apart from these, themes like PSUs and value unlocking stories in conglomerates could also play out well," Jasani said.
5 Jyoti Roy-DVP-Equity Strategist, Angel Broking
BFSI, building materials, cement, infrastructure, chemicals, IT, pharma and tractors.
"We believe that sectors like BFSI, building materials, cement and infrastructure will lead the next leg of the rally. We also remain positive on sectors like chemicals, IT and pharma and tractors, given strong revenue visibility in these sectors," said Roy.
6 VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services
IT, financials, cement, metals, chemicals, certain segments of autos. "Due to the government’s bold moves on privatisation, there is a lot of activity in PSU stocks. This is more a trading opportunity in anticipation of privatisation," said Vijayakumar.
7 Vikas Khemani, Founder, Carnelian Capital Advisors
IT services, banking, financials, capital goods, industrials.
"Banking and financial services stocks would do very well. The manufacturing segment is the one segment where we are seeing a very big investment cycle picking up in the next three-four years. Capital goods stocks, industrials will do extremely well according to us,” he told CNBC-TV18.
8 Vaibhav Sanghavi, Co-CEO, Avendus Capital Alternate Strategies
Bullish on housing finance, insurance and PSUs, including banks, Sanghavi told CNBC-Tv18.
9 Shyamsunder Bhat, CIO, Exide Life Insurance
The overall financial services sector
"Financial services, including fintech, companies could be wealth-creators over the next decade," he said. "Within the sector, we have a broad-based exposure across banks (largely private sector) and housing finance, with some exposure to select NBFCs and insurers," Bhat said.
10 Prabhudas Lilladher
Auto, auto-ancillary, power and infra. "At this point of time, these sectors are the most attractive ones that can yield good returns on your investment for a 1-year timeframe from here on," said the brokerage firm.
While these sectors may give healthy returns in the medium to long-term, it is advisable to avoid betting blindly on them and book-profits at regular intervals.
"Allocating large amounts of money at this point into even happening sectors may be a bit tricky as there exists a risk of a large reversal in the next four-six weeks. Hence paring positions and taking profits at regular intervals may be advised from the existing and new positions," said Jasani of HDFC Securities.
Khemani of Carnelian Capital Advisors warned against getting carried away by steep returns. Remain disciplined, stay focused on the business and the management, he said.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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