scorecardresearchAll sectors, except Nifty IT, gain in April; which one should you invest

All sectors, except Nifty IT, gain in April; which one should you invest in now?

Updated: 02 May 2023, 04:17 PM IST
TL;DR.

All sectoral indices, except one, gave positive returns in the month of April with Nifty Realty surging the most, up 15 percent, followed by Nifty PSU Bank, up over 12 percent.

Nifty IT was the one sector in the red in the previous month, down 3.5 percent.

Nifty IT was the one sector in the red in the previous month, down 3.5 percent.

After 4 months of being under pressure, the benchmark Nifty50 index recovered in April, up 4 percent, with value buying emerging post the recent correction in all the sectoral indices, except Nifty IT.

All sectoral indices, except one, gave positive returns in the month of April with Nifty Realty surging the most, up 15 percent, followed by Nifty PSU Bank, up over 12 percent. Meanwhile, Nifty Auto rallied nearly 8 percent, Nifty Bank rose 6.5 percent, Nifty Financial Services gained 6 percent, Nifty Metal advanced 5.5 percent, Nifty Pharma added 5 percent and finally, Nifty FMCG and Nifty Energy were up 4 percent each.

However, Nifty IT was the one sector in the red in the previous month, down 3.5 percent.

Despite this recent recovery, most experts feel that the key drivers of the market – both globally and locally – continue to remain uncertain, implying that the focus has to be on bottom-up stock picking. Let's take a look at what sectors you should pick going ahead.

Here's what various experts advise.

Deepak Jasani, Head of Retail Research, HDFC Securities, believes that automobiles led by a rise in passenger vehicles and commercial vehicles volumes and margin improvement for OEMs partly offset by continued weakness in the 2-wheelers export market, and banks driven by robust loan growth, seasonal tailwinds and steady asset quality could do well.

However, he further noted that the PAT growth of metals and mining could fall sharply YoY due to lower commodity prices, slower offtake and weak realization. In terms of volume growth, FMCG companies are likely to see another subdued quarter in Q4FY23, especially as there are no clear signs of revival in rural demand. Domestic consumption growth may depend on the onset and progress of monsoon given the subdued rural consumption backdrop, he said. Results so far have been a mixed bag. IT companies have on an overall basis disappointed with a few exceptions while banks have performed in line with or better than expectations, added the expert.

Meanwhile, Rohan Mehta, Founder and Portfolio Manager at Turtle Wealth, believes the strategy for investors is simple - stay invested. Don’t be surprised if a new sector or stock starts making a progressing journey, and be with the winners, he told investors. If IT is not performing, don’t shy off to sell it and if manufacturing is performing, don’t hold yourself from buying it; that’s where the wealth is created over the decade period, he suggested. Further, he added that investors should be cautious about sectors like manufacturing, auto, infra, and PSU.

Motilal Oswal, meanwhile, pointed out that in this era of higher interest rates, growth stocks suffered the most, especially those that disappointed on profit expectations. As per the brokerage, sectors with reasonable valuations (P/E <20x) and resilient earnings - financials, automobiles and utilities - outperformed while commodities (metals and oil & gas), healthcare and technology dragged.

The consumer sector’s performance was disproportionately led by ITC, the best-performing Nifty stock in FY23, it further mentioned.

The correction and breather in markets, especially broader markets, have thrown up interesting opportunities and made the risk-reward relatively more favorable, said the brokerage.

It has maintained an ‘overweight’ stance on financials, capex and autos and upgraded consumption to ‘overweight’. Meanwhile, it is ‘neutral’ on IT and healthcare while retaining an ‘underweight’ stance on metals, energy and utilities. It has also reduced the rating for the energy sector to ‘underweight’.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, observed that banks have the potential to continue outperforming. The credit expansion in India continues to be strong. Indian banks are well regulated and there is no risk of a crisis like in the US. The leading large private banks and SBI and BoB are safe bets. Pharma has the potential to outperform this year and capital goods will also continue to do well, he stated.

“There is global support for the ongoing rally in the Indian market. The mother market, the US, is doing well supported by better-than-expected earnings from Big Tech companies. The latest GDP numbers from the US indicate a strong but slowing economy. Markets are now discounting a 25 bp rate hike by the Fed next week and then a pause. This will be favourable for the market in the short term. Since the Nifty has moved up in the April series, some profit booking can happen in the near term. An important sectoral trend in the market is that while large-cap IT has been performing poorly, mid-cap is doing well and some of them have given optimistic guidance for FY24. Stay invested in mid-cap IT. Long-term investors can utilise weakness in large-cap IT to accumulate these stocks. Banking stocks will remain resilient,” he advised.

B&K Securities also said that given the uncertainty and relative valuations, it has advised a 'sector neutral' strategy to investors. It has reduced its weight on IT from ‘overweight’ to ‘neutral’ based on the global BFSI (banks, financial services and insurance) uncertainty. It is also ‘neutral’ on communication services.

However, the brokerage pointed out that amid this volatility, cement sector seems to be standing out on the back of an improving outlook with robust demand and sharp correction in fuel prices.

Finally, Nuvama highlighted that historically, during a global crisis, large caps/cash-cows like FMCG, IT, and pharma outperform whereas cyclicals like financials, industrials, and metals underperform mainly due to the balance of payments shock, which impinges domestic liquidity and depreciates rupee.

With liquidity surplus now vanished and large outperformance in 2022, the brokerage has further lowered its exposure in banks, financial services and insurance (BFSI), and is underweight on other cyclicals like industrials, energy, metals, and durables. Meanwhile, it increased its ‘overweight’ stance in cement, pharma and IT as EPS downgrade risks are relatively lower. However, quick and large Fed reversal could limit dislocations, it warned.

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First Published: 02 May 2023, 04:17 PM IST