Buy on dips? Analysts suggest buying stocks from these sectors now
After rallying more than 9 per cent from January 1 to July 31, the benchmark BSE Sensex has risen 1.5 per cent on a month-to-date basis till August 16
- Aug 17, 2023,
- Updated Aug 17, 2023 12:50 PM IST
Domestic equity markets took a breather in August after delivering handsome returns to investors till July this calendar year. Market watchers believe that the strengthening of the dollar index, inflation worries, weak global cues and the deteriorating Chinese economy weighed sentiment in the recent past.
After rallying more than 9 per cent from January 1 to July 31, the benchmark BSE Sensex has risen 1.5 per cent on a month-to-date basis till August 16. Sector wise, the BSE Realty index has lost 5.8 per cent so far in August. It was followed by the Metal index (down 4.2 per cent), Bankex (down 4.1 per cent), Power (down 3.1 per cent) and PSU (down 2.7 per cent). On asking which sectors may deliver solid returns to investors going ahead?
Umeshkumar Mehta, CIO at SAMCO Mutual Fund, said, “Investors can zero in on information technology (IT) and banking sectors. The IT sector has underperformed in the last 15-18 months and in such a period, earnings have grown and that effectively suggests valuations in the sector across the board have moderated by 20-30 per cent. Valuations, comparatively, have become far more reasonable.”
He further added that in the next 6-12 months, when the environment in the US settles down and the Fed starts talking about easing interest rates, IT would be a beneficiary, in a big way.
While sharing his views on the banking sector Mehta added that the Indian banking sector appears to be in a much better shape when compared to a decade back. “After a long hiatus, we have seen resilient credit growth in the sector as a whole because of the revival of the investment cycle from the private sector and public equally. Post improvement in margins last year on the back of increased interest rate, effective credit demand would help the sector take the lead,” he said.
Gaurav Dua, Head-Capital Market Strategy, Sharekhan by BNP Paribas is also bullish on banking and financials. He also likes industrials including railways and the defence sector. “We have also turned positive on healthcare, especially pharma sector. Banks, financials and industrial are a play on multi-year upcycle in the Indian economy and consequently should be part of any investor’s portfolio. Within the pharma sector, we see an improving business environment for formulation companies with stability in raw material prices and easing out of pricing pressure in regulated markets. Hence, we see scope for outperformance by pharma pack over the next few quarters and a couple of years,” Dua said.
On the other hand, Tejas Gutka, Fund Manager, Tata Mutual Fund said given the growth challenges in the developed world, investors should focus on domestic sectors over export-oriented ones. Within the domestic sectors, the preference is tilted towards cyclical names over structural ones.
“Some of the sectors that we are overweight on include financials, capital goods, building materials, and industrials. All these sectors witness an improvement in growth with stable or improving margins. Valuations are reasonable in some cases, while for some other sectors, they have moved higher than average. In cases where valuations are above average, we are selective in picking stocks that still trade at relatively reasonable valuations. Nevertheless, given the higher pace of earnings growth, investors can compound capital at above-average rates despite the higher valuations,” Gutka said.
Also read: Hot stocks on August 17, 2023: Adani Power, Suzlon Energy, IRFC, Cipla and more
Domestic equity markets took a breather in August after delivering handsome returns to investors till July this calendar year. Market watchers believe that the strengthening of the dollar index, inflation worries, weak global cues and the deteriorating Chinese economy weighed sentiment in the recent past.
After rallying more than 9 per cent from January 1 to July 31, the benchmark BSE Sensex has risen 1.5 per cent on a month-to-date basis till August 16. Sector wise, the BSE Realty index has lost 5.8 per cent so far in August. It was followed by the Metal index (down 4.2 per cent), Bankex (down 4.1 per cent), Power (down 3.1 per cent) and PSU (down 2.7 per cent). On asking which sectors may deliver solid returns to investors going ahead?
Umeshkumar Mehta, CIO at SAMCO Mutual Fund, said, “Investors can zero in on information technology (IT) and banking sectors. The IT sector has underperformed in the last 15-18 months and in such a period, earnings have grown and that effectively suggests valuations in the sector across the board have moderated by 20-30 per cent. Valuations, comparatively, have become far more reasonable.”
He further added that in the next 6-12 months, when the environment in the US settles down and the Fed starts talking about easing interest rates, IT would be a beneficiary, in a big way.
While sharing his views on the banking sector Mehta added that the Indian banking sector appears to be in a much better shape when compared to a decade back. “After a long hiatus, we have seen resilient credit growth in the sector as a whole because of the revival of the investment cycle from the private sector and public equally. Post improvement in margins last year on the back of increased interest rate, effective credit demand would help the sector take the lead,” he said.
Gaurav Dua, Head-Capital Market Strategy, Sharekhan by BNP Paribas is also bullish on banking and financials. He also likes industrials including railways and the defence sector. “We have also turned positive on healthcare, especially pharma sector. Banks, financials and industrial are a play on multi-year upcycle in the Indian economy and consequently should be part of any investor’s portfolio. Within the pharma sector, we see an improving business environment for formulation companies with stability in raw material prices and easing out of pricing pressure in regulated markets. Hence, we see scope for outperformance by pharma pack over the next few quarters and a couple of years,” Dua said.
On the other hand, Tejas Gutka, Fund Manager, Tata Mutual Fund said given the growth challenges in the developed world, investors should focus on domestic sectors over export-oriented ones. Within the domestic sectors, the preference is tilted towards cyclical names over structural ones.
“Some of the sectors that we are overweight on include financials, capital goods, building materials, and industrials. All these sectors witness an improvement in growth with stable or improving margins. Valuations are reasonable in some cases, while for some other sectors, they have moved higher than average. In cases where valuations are above average, we are selective in picking stocks that still trade at relatively reasonable valuations. Nevertheless, given the higher pace of earnings growth, investors can compound capital at above-average rates despite the higher valuations,” Gutka said.
Also read: Hot stocks on August 17, 2023: Adani Power, Suzlon Energy, IRFC, Cipla and more