Keep 10% cash ready and invest in these 3 sectors on dips, suggests Axis Securities

Automobiles, banking, financial services and insurance, and industrial may deliver solid returns to investors going ahead, according to Neeraj Chadawar, Head Quantitative Equity Research at Axis Securities, who sees the NSE Nifty at 20,200-mark by the end of 2023. The 50-share index was trading at 19368-mark on August 21. In an interaction with Business Today, the market watcher said robust balance sheets and improvement in asset quality coupled with credit growth, higher profitability and superior return ratios would drive the BSFI sector.

Chadawar also added that demand growth, margin expansion, price hikes and new launches drive the automobile sector, while a rise in the order book, early pick up in the capex cycle and improving return ratios to boost the industrial sector.

Considering the present market condition, the market watcher recommended investors maintain liquidity of 10 per cent to use any dip in a phased manner and build a position in high-quality companies where earnings visibility is high.

“We continue to believe in the long-term growth story of the Indian equity market, supported by the emerging favourable structure, as increasing capex enables banks to improve credit growth. We foresee Nifty EPS to post growth of 16 per cent and 13 per cent in FY24 and FY25, respectively. We maintained our December 2023 Nifty target at 20,200 by valuing it at 20x on December 2024 earnings,” Chadawar said.

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In the bull case scenario, he sees Nifty at the 22,200-mark by December 2023. “Our bull case assumption is based on the overall reduction in volatility and the success of a soft landing in the US market. At present, we are near the peak of the rate hike cycle and may expect only one rate hike in the US market before the US Fed takes a pause. If the market sails through the next one or two quarters smoothly, we will likely see the next level of triggers, along with money flowing to emerging markets. This, in turn, would increase the market multiple,” he said adding hard lending, inflation and oil prices could lead to some correction in the market.

Chadawar is bearish on the information technology (IT) sector which has declined more than 18 per cent since January 2022. On the other hand, the benchmark BSE Sensex has gained nearly 11.50 per cent during the same period.

Sharing his views on the IT sector, he said, “Macroeconomic conditions are more challenging for IT services, and we believe growth is likely to moderate in FY24. Therefore, the IT sector will remain in a ‘Wait & Watch’ mode, especially given the concerns in the global market.” The market analyst is also bearish on chemicals sectors, citing moderating growth, margin pressure and higher valuations.

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