Which sectors remained in the limelight in FY17? What next for them?

“Furthermore, there was an expectation of deterioration of asset quality on retail banks. However, for the past four quarters, retail banks’ gross NPL ratios had were flat and had not inched up and implied a stable credit cost. This asset quality in banks surprised favourably,” he added.

On consolidation in the space going forward, he sees risks in it and the government has to drive this activity by infusing funds into banks. “It will make sense to see a bank with high capital to take over a bank with lower capital. Barring a couple of PSU banks, other large ones are not heavily capitalized to do so,” he told moneycontrol.

Meanwhile, the tackling of the NPA problem would be amongst the most important triggers for the banking sector in FY18, Jayant Manglik, President, Retail Distribution, Religare Securities told moneycontrol, adding that mergers & acquisitions in the private banking space is also something which the market has on its radar.

Technology sector underperformance in the year gone by was largely attributed to likely change in US H1-B visa norms and pricing pressure that hit earnings.

In the backdrop of the recent regulatory changes in the US, lower spending on technology and the mixed global macro-economic outlook, Manglik expects the Indian IT companies to report subdued earnings. "The sharp rupee appreciation will pose an additional challenge for IT companies’ margins in the near-term," he says.

Healthcare was hit by regulatory concerns in leading companies like Sun Pharma, Dr Reddy's Labs etc and also pricing pressure in US. Among them, Lupin was able to get its all plants cleared from US Food & Drug Administration.

This regulatory pricing pressure and USFDA inspection may continue to be sentiment dampeners initially in FY18, but exports may see good growth, especially in generic drugs, Manglik feels.

India has a large pipeline of ANDAs pending approval, which if cleared will drive revenue growth in the coming year, he feels. Also, demand from domestic market is expected to remain strong, according to him.

Telecom was another sector that most talked about in the year gone by, due to consolidation post pricing war raised by Reliance Jio giving free services for six months ended March 2017. To retain a hold in telecom business, Bharti Airtel acquired Telenor India and Tikona while Idea Cellular and Vodafone announced merger.

“The telecom war was anticipated to have negative repercussions on balance sheets of large players with smaller ones now being almost wiped out. This saw merger activity pick up between Idea & Vodafone which saw the Idea stock recover from extremely oversold territory where valuation of the business was at a deep discount. The same saw the stock jump almost 50 percent in a matter of weeks with the whole sector in large cap stocks getting rerated,” said Sanjiv Bhasin Executive Vice-President, Markets & Corporate Affairs, IIFL.

“The telecom price war will keep pressure on margins & hurt earnings for the next year with only 3-4 players surviving longer term-short term is would be advantage customer,” he told moneycontrol.

Meanwhile, despite the recent consolidation moves in the industry, Manglik says he continues to remain vary of investing in telecom sector stocks, as the competitive pressures in the sector are unlikely to ease any time soon, which is likely to weigh on profitability of telecom companies.

Going forward...

Manglik says investors need to have a bottom-up approach while investing in any sector. Companies having niche capabilities and/or strong growth potential are something that he prefers.

"While we would not recommend investments in the telecom sector at the current juncture, selective buying across the other sectors like IT, Pharma, Auto and Banking can be considered," he says.