Experts feel that with the government keeping a keen eye on the fundamentals, we could see more such measures.
The slowdown might not be good for the economy but it can be good for your portfolio, say experts. The recent fall in the markets is an opportunity for long-term investors to build a portfolio at better valuations.
India's GDP growth dropped to a six-year low to 5% in the April-June quarter, the slowest in six years, official figures released on August 30 show.
The global economy, too, is showing signs of a recession. The US, the world’s largest economy, slowed a bit more than initially thought in the second quarter.
In India, the government has taken a string of measures to arrest the falling growth. Roll back of higher tax surcharge on foreign investors, tweaks in FDI norms and merger of public sector banks to name a few.
Those looking to build long-term portfolios should include stocks linked to the economy, say experts.
“The recent measures announced by the government are likely to benefit sectors such as auto, banks and housing finance as well as infrastructure, etc. that have underperformed due to economic slowdown and liquidity concerns in NBFCs,” Ajit Mishra, Vice President Research, Religare Broking, told Moneycontrol.
With the government keeping an eye on the fundamentals, analysts are hopeful of more such moves.
“Economy-linked stocks are back in trend, as these stocks have a direct correlation to the economy and were the hardest hit in the past few months. For example, the liquidity squeeze affected NBFCs, infra stocks to a great extent as the lack of trust in the system muted further lending and hence halted the cycle of cash flows,” said Umesh Mehta, Head of Research, SAMCO Securities.
“However, during ensuing rallies, the bounce-back of these stocks will be the highest. If macros and micros are favourable, the bounce will sustain but that seems unlikely and the rally seems short-lived,” he said.
A list of stocks and sectors that are likely to benefit the most from a revival in the economy:
Ajit Mishra, Vice President, Research, Religare Broking
We believe the focus of investors should be on stocks like Maruti, Ashok Leyland, HDFC, Axis Bank and L&T. These large-cap stocks are fundamentally sound and are likely to be key beneficiaries of economic recovery.
We believe Maruti Suzuki and Ashok Leyland are attractively valued in auto space. HDFC Ltd and Axis Bank are one of the top companies in NBFC and banking space and would benefit from interest rates moderation and RBI stimulus.
Moreover, pick up in public and private capex would help L&T’s order inflows . Further, given the recent correction in the above-mentioned stocks, valuations are reasonable at current levels. Hence, investors can buy these stocks in a phased manner for the long-term.
Atish Matlawala, Sr Analyst, SSJ Finance & Securities
We believe ICICI Bank and Axis Bank will benefit from the revival in the economy, as both the banks have cleaned up their NPA mess and looking to grow their balance sheets aggressively.
Real estate sector, which gives employment to a large number of people, is reeling under stress from large unsold inventory. This is one sector which we believe could get some breather from the government.
Financials: Positive for PSU banks and for HFCs. Also positive for leading private banks (FPI holding). Top picks: HDFC Life, SBI Life, HDFC Bank, Kotak Mahindra Bank, Axis Bank.
Autos: Most beneficial for CV, slightly positive for PV, but no meaningful benefits for 2W. Top picks: Maruti and Eicher Motors.
Consumer: No direct impact, but potential indirect benefits, depending on improvement in the liquidity situation. Top picks Dabur, Marico, ITC and Jubilant FoodWorks.
Energy: Minimal impact, but potential benefits on better PSU health. Top picks: RIL, GAIL and BPCL.
IT Services: Near-term negative, depending on FX. Top picks: HCL Tech, Infosys and TCS.
Vinay Pandit, Head, Institutional Equities, IndiaNivesh
The auto and banking sectors will be key beneficiaries from the recent measures announced by the government. We continue to be positive on the auto sector at this point, especially two-wheelers when the companies are at significantly lower valuations with clean balance sheets.
Banks will see renewed interest led by the government’s upfront recapitalisation plan, which will aid the revival of NBFCs as well.
Japanese brokerage house Nomura upgraded its India rating to overweight, saying it is the time to raise allocation on positive local developments amid rising global uncertainty.
According to the research house, reform measures and sectoral incentives could give the much-needed booster shot to the economy. "We expect the recovery in economic growth to 6.6 percent in the second half of FY20 from 5.8 percent in the first half," it said.
From a portfolio perspective, the global brokerage likes financials, consumer discretionary and industrials, while Nomura's top picks are ICICI Bank, ICICI Prudential Life, L&T, SBI and Container Corporation.
Disclaimer: The views and investment tips expressed by 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.
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