Sensex scales record high on International Yoga Day; expert backs these stocks to deliver 25% returns in 1 year

The benchmark BSE Sensex hit a new record high on International Yoga Day on Wednesday, taking the ongoing rally to 4.5 per cent on a year-to-date basis. The 30-share index jumped to 63,588.31 in early trade on Wednesday against the close of 60,840.74 on December 30, 2022. On the other hand, the broader indices BSE Midcap and Smallcap have gained more than 10 per cent during the same period. Will the ongoing momentum in the domestic equity market sustain?

In an interaction with Business Today, Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, said small- and mid-cap segments should continue to do well going forward mainly because input costs have fallen.

“We have seen a pick-up in demand. Interest rates are close to a peak. As a result, several stocks from broader markets have delivered all-time high sales and profit numbers in Q4FY23. This trend should continue in the coming quarters as well,” Sheth said.

Sectors to watch

With a rally of around 20 per cent YTD, the BSE Realty index emerged as the top gainer on the exchange. It was followed by capital goods (up 19.80 per cent), Auto (up 18 per cent) and FMCG (up 16 per cent).

Sharing his views on the outperformance of the real estate sector, the market watcher said the recent price action in the real estate sector can mainly be attributed to the quarter-ending financials.

“The strong business performance by realty companies and record pre-sales numbers led to a rally in the BSE Realty Index. Further, a pause in the interest rates was also cheered by the sector. The recent project additions which led to record pre-sales numbers for the realty companies will help to continue the uptrend for the sector. A rate cut would further improve the sentiment and demand, which bodes well for the sector and could keep the momentum in the real estate sector going,” he said.

Views on auto, FMCG and capital goods

Commenting on the auto sector, Sheth added that good times are rolling for the auto sector in India. The strong demand momentum brought cheers to the volumes while easing commodity prices brought relief to margins. Better operating leverage, favourable product mix and price hikes augmented well for the companies. With expectations of a rebound in exports, the auto sector is ready for a jolly ride.

He further thinks that the capital goods space has stood head and shoulder above other sectors. The government’s increased push towards infrastructure led to a surge in the order books of companies. Further, post Covid, private companies have reaped the rewards of deleveraged balance sheets.

“With this being a pre-election year, order books for infrastructure companies are bound to swell further. This would ultimately get reflected in their financials. However, timely execution of projects remains a key challenge,” he said, adding that the financials of the FMCG companies had been heavily impacted by the substantial inflation experienced in the previous fiscal year. Growth slowed in the sector as a result of poor spending by consumers and a lack of demand.

Sheth added that things have improved as a result of falling inflation and rising customer confidence. For Indian FMCG firms, rural penetration has been on the rise. As Indian consumers’ purchasing power rises, the premiumisation agenda will promote the industry’s overall expansion, which will benefit the financial health of the businesses that produce high-margin goods.

What to buy now

Considering current market conditions, Sheth believes that private sector banks, engineering, infrastructure, construction and auto ancillary space look the best from a short-to-medium-term perspective.

For stock-specific investors, he suggested adding Axis Bank, Syngene, PSP Projects, HG Infra Engineering, and Wendt India for 12 months horizon.

“We see an upside of 18-25 per cent in these stocks,” Sheth said.

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