The festive season began on a happy note, with fireworks on Dalal Street, the market touching new highs and satisfactory second quarter results. Then came key developments that were expected to impact the market, including the Coal India public offering and the central bank's monetary policy report.
With these out of the way, the market is in for a slight lull and a distinct easing of uncertainty. So, rather than tracking the sentiments of the Sensex, it might be a good time to look at the various sectoral allocations in our model portfolios and their growth prospects.
The Wealth Maximiser has given an absolute return of 10.8 per cent since its inception in May. Its top holdings in outperforming sectors such as financial services, automobiles and FMCG have played a big role in its success.
The aggressive portfolio has the highest equity allocation of 18.49 per cent in the financial services industry, with two banking stocks in the top five holdings. According to a report by Motilal Oswal, the profit margins of the banking sector are expected to remain strong in the coming financial year as well.
The report anticipates the growth to be led by re-pricing of deposits, strong CASA (current and savings account) base, and an improving loan growth resulting in a higher credit-deposit ratio.
Thus, the investments in this sector are expected to grow. The second quarter results for the energy sector, which forms 12.59 per cent of the equity holdings of the portfolio, were mostly in order.
However, Motilal Oswal believes that positive cues like strengthening crude oil prices were more due to a weakening dollar than a rise in demand. Also, the rise in the Singapore GRM (gross refining margin) from $3.7 per barrel to $4.2 per barrel was led by the strikes in France.
The company expects refining margins to be subdued unless there are major refinery closures and global economy strengthens, which will have a bearish impact on the sector.
- The second round of quantitative easing by the American Federal Reserve may provide an instant boost to the international markets.
- With falling industrial output, the RBI may ease its hawkish monetary policy.
- A drop in inflation rate will be beneficial for the consumer goods sector.
The automobiles sector, which constitutes 7.29 per cent of the equity portfolio, saw yet another month of double-digit growth. The demand continued to surpass supply despite price hikes by automakers. Angel Broking has maintained a positive outlook on the sector and estimates the overall auto volumes to register a 13 per cent CAGR over 2010-12.
However, it also anticipates obstruction in the form of increased input costs and interest rates, which might affect the sector's volume and earnings growth. With FMCG taking up 6.71 per cent of equity investments, it is another key sector in the portfolio.
Sharekhan expects this industry to continue to register a high sales growth. Though food inflation has decreased, it is expected to come down further in the next couple of months due to the increased purchasing power of consumers, sufficient rainfall and a good agricultural output.
The other portfolios have also given steady returns. Growth-oriented Money Builder delivered a 9.3 per cent return, with 68.3 per cent holdings in equity. We will examine this portfolio in detail in the next issue. The two lowrisk, debt-oriented portfolios suffered due to another hike in rates by the RBI.
The Income Generator gave a 4.4 per cent return, while Stable Growth earned an absolute return of 4.3 per cent. However, the falling IIP numbers can make the central bank curb its liquidity tightening measures.