4 sectors that PMS managers are betting big on, investing 50% of funds

-

Fund managers of Portfolio Management Services (PMS) typically prefer a bottom-up approach while building their clients' portfolios. Initially, they pick up stocks and later look at other measures such as sectoral opportunities.

Identifying the right stocks has been a key for generating higher returns. PMS fund managers also consider sectors that those stocks are a part of and evaluate the potential impact on their portfolios amid dynamic macro-economic conditions.

Finalyca PMS Bazaar lists four sectors such as financial service, healthcare, capital goods and auto, where the PMS held significant allocation. As of August 31, about 49.5 per cent of the PMS industry assets under management (AUM) was parked in these sectors. Finalyca considered only the strategies disclosed in their portfolio. The consolidated data exhibits these sectors that fund managers believe have promising prospects.

Financial services

Financial services was the most favoured sector and constituted 22.6 per cent of the PMS industry AUM as of end-August. It includes sub-sectors such as public and private sector banks, non-banking financial companies (NBFCs), asset management companies (AMCs), stock broking, insurance and fintech companies.

Also see: Winning the mid-cap race: How fund managers made their moves

Nirav Karkera, Head of Research, Fisdom, said, “While challenges such as margin compression and slower credit growth affect the broader banking sector, select focus on private banks, NBFCs, and wealth management companies represents a well-rounded and growth-orientated approach.”

Private banks are demonstrating strong financial performance, with improved asset quality, low non-performing assets (NPAs), and robust credit growth, Karkera added.

Select NBFCs — particularly in niche segments such as housing finance and micro-finance — continue to play a vital role in expanding credit access to underserved markets. Wealth management companies are also experiencing an uptick in demand amid an expansion of India's affluent middle class. These firms are capitalising on increased financial literacy and the rise of digital platforms to offer personalised, technology-driven investment solutions, Karkera said.

Capital goods

With 12 per cent allocation, capital goods was the second-most preferred sector among the PMS. “The capital goods sector was preferred by many portfolio managers, as it includes industries such as manufacturing, construction, and heavy machinery,” said Ravi Kumar TV, Director, Gaining Ground Investment Services.

See here: This mid-cap index shines as active funds struggle to outperform

This sector tends to perform best during an economic expansion phase, especially during the mid-to late-stage, Kumar said.

Capital expenditure (capex) tops the government's priority, as it making massive investments to ramp up infrastructure and manufacturing facilities across the country. Rising corporate profits and increased business drive demand for capital goods. The fund managers are bullish about lowering of interest rates by the Reserve Bank of India (RBI) over the next few months. The move will reduce cost of borrowing for these companies to finance large scale investments in machinery and equipment.

“Once the global trade  picks up, there will be further boost to support the industrial production. The sector's outlook is strong because of the government's robust focus on capex,"  Kumar added.

Healthcare

Pharmaceutical and healthcare stocks have fared well over the last 15-18 months after a disappointing performance in 2022. The Indian Healthcare industry has reported significant growth, driven by increasing incidence of chronic diseases combined with rising affordability of care due to disposable incomes and deepening insurance penetration.

Read here: No new sovereign gold bonds? Check out the most liquid ones on the NSE

Trivesh, Chief Operating Officer, Tradejini, said, “India has become a global leader in medical tourism because it offers world-class healthcare at affordable costs. Patients from across the globe are choosing India not just for its advanced medical facilities, but also for the affordability.  Rising incomes and better insurance coverage also allow more people to seek premium healthcare services.”

PMS managers have increased their exposure to this sector, recognising its long-term growth potential, Trivesh said. PMS' allocation to the sector was 8.7 per cent as of August 31.

Auto

Most auto stocks have done well over the last one year due to a revival in demand, new launches and stable raw material prices. BSE Auto index has gained 67 per cent in the past year. PMS have allocated 6.2 per cent of the assets to the sector.

PMS managers are strategically allocating funds to this sector. They are betting big on the structural growth story driven by both domestic consumption and export potential. Despite some short-term weaknesses, the sectoral outlook remains optimistic, according to Trivesh.

"There is a discernible trend of a higher demand for the premium auto segment because many consumers are flush with disposable cash. A shift towards quality is also fuelling the sales of the premium segment," said Divam Sharma, Founder and Fund Manager, Green Portfolio PMS.

“With higher disposable income and a growing preference for premium vehicles, the demand has surged. India's exports have seen an uptick, and government initiatives such as 'Make in India' have made the country a manufacturing hub for global auto players,” Trivesh added.

Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

Disclaimer: The views and investment tips expressed by investment 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.

Also read: Small- and mid-cap stocks powering the best-performing PMSes