scorecardresearchMarkets volatile since peaking in Oct'21: A look at sectoral patterns amidst the chaos

Markets volatile since peaking in Oct'21: A look at sectoral patterns amidst the chaos

Updated: 22 Mar 2022, 01:05 PM IST
TL;DR.

As per a Bank of America Securities (BofA) report, of the 9 cycles, 5 were correction cycles with an average 6.3 percent fall while the remaining 4 were recovery cycles with an average 5 percent returns.

As per a Bank of America Securities (BofA) report, of the 9 cycles, 5 were correction cycles with an average 6.3 percent fall while the remaining 4 were recovery cycles with an average 5 percent returns.

As per a Bank of America Securities (BofA) report, of the 9 cycles, 5 were correction cycles with an average 6.3 percent fall while the remaining 4 were recovery cycles with an average 5 percent returns.

Indian markets have been pretty volatile since hitting record highs in October 2021. It has seen nine distinct cycles of corrections and recovery since then. As per a Bank of America Securities (BofA) report, of the 9 cycles, 5 were correction cycles with an average 6.3 percent fall while the remaining 4 were recovery cycles with an average 5 percent returns.

In a recent report, the brokerage has analyzed these cycles and identified patterns in sectoral behavior during these market swings.

"While history might not necessarily repeat and reasons for these past patterns could be different across each of these cycles, we believe they could serve as some reference going forward, as volatility is only likely to continue given the current environment. We too continue to recommend caution, at least in the immediate term," BofA said in the note.

Index performance during identified cycles

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Since Oct-21 peak, markets have witnessed 5 correction and 4 recovery cycles below
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Nifty correction and recovery cycles since peak of Oct-21

For investors with short-term horizons

As per the report, the sectors that recovered most during the 4 cycles of market recovery include Industrials, Discretionary, Cement, Metals and IT. These sectors delivered higher returns during Nifty recovery cycles.

Let's now look at the brokerage's preferred stocks within these sectors. It likes Bharat Heavy Electricals due to its robust outlook on localization, export push, diversification. Among IT stocks, it prefers Tech Mahindra and HCL Tech due to relative valuation comfort and headroom to manage margin pressures. It also likes Shree Cement on the back of higher exposure to improving east India market and steep capacity additions and Hindalco for its strong aluminum fundamentals.

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Leading sectors during Nifty recovery cycle

Meanwhile, sectors that corrected most during market correction include Cement, Industrials, Autos, and Financials. Within these sectors, BofA remains cautious on ACC, BHEL, Tata Motors, and PNB Housing.

Among sectors that corrected the least or outperformed during market correction cycles are most defensives. Utilities, Healthcare, Comm., services, IT and Materials are these sectors. Among these, BofA analysts like NTPC, Sun Pharma, Bharti Airtel, Tech Mahindra and HCL Tech.

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Lagging sectors during Nifty correction cycles

For long-only investors

For long-term investors, defensives with metals are the best choice amidst market volatility, noted the brokerage.

Utilities (+8.3 percent), Comm. Services (+8.1 percent), Metals (+7.6 percent), Discretionary (+6.4 percent), and IT (+5.3 percent) outperformed Nifty the most since October 2021, while Cement (-5.7 percent), Staples (-3.9 percent), Autos (-3.8 percent) and Financials (-3.5 percent) underperformed the benchmark.

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Sectoral performance vs Nifty from Oct-21 peak to end of analysis period

Going ahead, the brokerage feels factors including COVID Omnicron Variant, Russia-Ukraine Crisis, surge in oil prices, RBI repo rate hike and beginning of Fed rate hikes are some key events that will impact markets in 2022.

First Published: 22 Mar 2022, 01:05 PM IST