Sushil Kedia's election aftermath playbook: Exit financials, PSUs, enter FMCG and IT sectors

Looking ahead, Sushil Kedia sees potential in media and mid-cap pharma sectors. He remains cautious about large-cap pharma stocks like Dr. Reddy's and Sun Pharma, recommending short positions on any rallies

As benchmark indices Nifty and Sensex saw a massive sell-off, falling nearly six percent following early leads from the vote tally, Sushil Kedia observed that the banking index appears to have reached a long-term peak. The veteran investor believes that Nifty is likely to oscillate within the 21,000 to 23,000 range for some time.

Kedia's strategic approach during the election period involved safer bets on fast-moving consumer goods (FMCG) and small IT firms, sectors known for their earnings visibility and stability.

These sectors, according to Kedia, will continue to benefit as funds rebalance their portfolios. The investor emphasized that the era for financials and public sector undertakings (PSUs) might be over, suggesting that defense and railway thematic stocks have also likely topped out.

This indicates a shift in market preferences towards sectors with more predictable earnings and growth potential.

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The 'Sell-Off'

Addressing the market's behavior following sharp sell-offs, Kedia explained that significant single-day declines often eliminate short-term weak bulls, setting the stage for a rally.

Historical patterns show that markets typically stabilize and revert to fundamental drivers such as the broader economic story and corporate performance after the election volatility subsides. He cautioned against taking a broad bearish stance, suggesting instead that investors focus on sectoral shifts.

Kedia pointed out the rise in bond yields, attributing it to the anticipation of a coalition government, which could bring inflationary pressures. He expressed a bearish view on PSU banks and certain telecom stocks like Bharti, expecting a significant downside.

Conversely, he identified potential long opportunities in sectors such as FMCG and IT, which provide a safer harbor amid market turbulence.

Sectoral Opportunities and Shifts 

Reflecting on the pre-election period, Kedia told Moneycontrol that he had already anticipated sectoral rotation. He highlighted the underperformance of IT and FMCG stocks relative to their potential, making them attractive even if a strong government mandate had materialized. With a fragile mandate now in place, these sectors become even more appealing as safe havens.

Kedia remarked on the oversaturation of certain stocks, including those in defense and PSU segments, which have seen widespread buying to the extent that "even the Paanwala had bought them." With little room for further upside, he advised exiting these positions on any market rally.

Emerging Opportunities

Looking ahead, Kedia sees potential in media and mid-cap pharma sectors. He remains cautious about large-cap pharma stocks like Dr. Reddy's and Sun Pharma, recommending short positions on any rallies.

However, he continues to support mid-cap pharma names for their growth prospects over the next six months.

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In real estate and cement sectors, Kedia suggests that new opportunities may emerge once the market stabilizes. He stresses the importance of observing how the coalition government allocates ministries and governs, which will influence sectoral performance.

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