The COVID-19 shock may not be over but the good news is that economy is no longer in ICU – that’s the message which came from the Prime Minister in his latest interview. Analysts advise investors to stick with sectors that support the economy, as well as consumption, financial, chemicals, rural, automobile, and IT (Information Technology).
Prime Minister Narendra Modi in his latest interview with a business daily assured that economic revival is on track, and identified 5 indicators to support the thesis.
Five indicators include agriculture which has shown record production, foreign direct inflows (FDI) which topped $35 billion in the April-August period, automobile, manufacturing, as well as EPFO.
The Indian market has already rallied by over 50 percent from the lows recorded in March, and further upside looks fairly limited as economic activity took a back seat amid the rise in COVID-19 related cases.
But, with green shoots being visible, analysts advise investors to take exposure in sectors that could do well in the next 2-3 years.
“Our thematic approach has seen consistent results and we continue to believe in our structural themes of IT, digital, pharmaceuticals, consumer staples, rural, chemicals, and automobiles,” Neeraj Chadawar, Quantitative Equity Research at Axis Securities told Moneycontrol.
“These themes played well in the last few months and have delivered consistent returns in a tough environment. We continue to believe in our long-term themes & could result in decent returns over the next 12 months,” he said.
The success of the recent IPOs have boosted the overall confidence in the market which is supported by improved liquidity and overall risk appetite which is leading the market to higher levels, suggest experts.
But, a sustained recovery can only be seen when earnings start to recover, and there is a revival in economic activity as COVID-19 cases go down.
For investors, any dip due to external factors can be an opportunity to get into sectors that will benefit from a shift in the global supply chain, as well as those sectors that could see financialization of savings as interest rates are likely to remain at low levels.
“Some of the opportunities where we could see some sectoral tailwinds are ones that benefit from the shift in global supply chains to India,” Ankit Agarwal, Fund Manager – Equity at UTI AMC Ltd told Moneycontrol.
“There are also opportunities in some of the underpenetrated segments in the consumer discretionary space that also benefit from formalisation trends. Some of the non-lending financials also benefit from long-term trends in financialization of savings,” he said.
Gaurav Misra, Senior Fund Manager- Equity, Mirae Asset Investment Managers India is of the view that the preponed and accelerated usage of digital and platform through new business models and through existing businesses across various sectors should create opportunities.
“Maybe with some additional fiscal support we can recoup the lost economic activity of the prior months and along with the recent reforms could get to a higher sustainable growth in the years ahead,” he said.
My hope is that corporate earnings as a percentage of GDP does pick up and move towards its average trend level of earlier years would also create additional opportunities, explains Misra.
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