Stocks of banking, realty and metal spaces have led the sectoral charts in the post-Budget rally that lifted the BSE benchmark by over 7 per cent this month.
While Budget 2016 may have triggered bounce in these stocks, strengthening hopes of an interest rate cut by Reserve Bank of India (RBI) in the run-up to monetary policy review on April 5 - at a time when global central banks too are turning dovish -have also propped these counters by up to 13 per cent.
The banking benchmark BSE Bankex has gained 12.88 per cent, the most by any BSE sectoral index in the post-Budget rally, followed by the BSE Realty (up 12.31 per cent). The BSE Capital goods and the BSE Metal index too have rallied 10.99 per cent and 9.97 per cent, respectively, in March.
Here's what experts have to say on these outperforming sectors:
Banking stocks warrant a pause, say experts. They believe one should adopt a wait and watch policy as things may look up only June-July onwards.
Jimeet Modi, CEO, Samco Securities said banking theme is hard to play at the current juncture and that the trigger for pushing up the stocks are lacking, especially among the public sector banks.
"The private sector players are trading at fair valuation and offers little margin of safety, however, at the same time, the PSU pack is beaten down hard, offering value but the triggers for the stock price appreciations are lacking," said Modi.
"PSU banks still have one more year to come clean on the stressed loans, who knows how many worms are still hiding and in addition the recapitalization efforts are below optimum requirements for maintaining the growth momentum," he added.
Stocks to look at: G Chokkalingam, Founder & Managing Director, Equinomics Research & Advisory recommend following stocks:
Private banks like Axis and HDFC Bank, apart from a few select PSU banks like State Bank of Bikaner, Vijaya Bank and Syndicate Bank which have relatively lower net NPAs within PSU pack and still growing business in a decent manner provide some margin of safety.
The BSE Realty index, which lost nearly 22 per cent year-to-Budget, has gained over 12 per cent in the post Budget period. However, R Sreesankar, Head-Institutional Equities at Prabhudas Lilladher believes rally in the realty stocks is not fundamentally driven, but witnessing a mere trading bounce.
"For a sustained rally, you need to see increased number of home buyers coming back into market. Affordability factor and Indian economy logging slightly better growth is also important," said Sreesankar.
Gaurang Shah, Vice President, Geojit BNP Paribas believes Real Estate Bill is a positive for the realty sector.
"Once Real Estate Bill is sealed and signed by the President, it will bring in a lot of discipline and corporate governance in the realty sector. It will enbale consumers to have more rights," said Shah.
The expert suggested differentiating between men and boys among realty stocks. "One should pick companies whose balance sheets are strong, debt is nil or less, completion of project is on time and realisation per square feet meets industry parameter or is above than that.
Stocks to look at: Godrej Properties, Mahindra Lifespace, Oberoi Realty, Shobha and Prestige Estates
Modi of SAMCO Securities feels the auto stocks in the two wheeler segment looks promising as the revival in the rural purchasing power would be the trigger for them to outperform in the next few quarters.
"The two wheeler segment had its share of consolidation in the past few quarters and is ripe for a rally in the medium term," said Modi.
But, Chokkalingam held a different view and said auto sector would see some headwinds in the short term due to imposition of cess, stiff competition from Honda (an unlisted entity) in the two-wheeler space.
Stocks to look at: Maruti in the passenger car segment looks attractive due to its recent correction. One can also look at tyre stocks like MRF.
Capital goods sector
Capital goods sector had lost over 22 per cent year-to-Budget, but gained 11 per cent after Finance Minister Arun Jaitley announced a slew of measures and allocated handsome amount to build rural infrastructure.
"The capital goods segment although will get a boost from the government spending program of Rs 2 lakh crore, but the huge debts and weakened fundamentals of the companies itself will not result in a sustained capital appreciation in the capital goods sector," said Modi.
Sreesankar believes a lot of private investment will be needed to boost the capital goods sector, which hasn't happened as anticipated.
"A huge amount of government spending has gone into infrastructure, within which stocks linked to road infra will see better scenario immediately," said Sreesankar adding this may not be the case for others which requires large amount of private capital investment as well.
Stocks to look at:
Metal stocks have finally found investor favour and have rallied nearly 10 per cent since Budget. But, if analysts are to be believed the rally will not sustain in the metal space.
"Nothing has changed at ground level for metal stocks. The upmove in the global commodity market pushed these stocks up, which will correct no sooner do the world commodity prices plunge. If someone has to buy metal stocks, she can buy them with two years plus horizon," said Shah.
However, Modi believes the base metal pack have a very good risk to reward ratio from the long term perspective.
On steel stocks, Chokkalingam said the rally will not be sustained as steel consumption is still growing in single digit and the adverse impact of China's over capacity (though it has proposed to cut down capacity by about 150 million tonnes) would haunt the global steel industry for another 2 to 3 quarters at least.
The expert believes the March quarter results would be disappointing for many steel companies.