With the new Hindu accounting year of Samvat 2080 beginning on a strong note following upgrades in the September quarter earnings season, stock pickers are turning the lens on sectors that have won consistently in the last 10 Samvat years.
Among major sectoral indices, BSE Bankex, BSE Energy and BSE FMCG are three indices that have given positive returns in 9 out of 10 last Samvat years. Out of the top three consistent performers, experts remain bullish on banks as well as energy while the outlook for FMCG is mixed.
Banking largecaps are trading below their historical valuations in spite of very good results in Q1 and Q2 due to sustained FII selling, which, in turn, has been triggered by the rising bond yields in the US.
“Bankex stands a good chance of outperformance in Samvat 2080. Even though the market is not cheap, banking stocks are attractively valued. Things will change as the US economy slows down and the Fed responds with a rate cut by mid 2024. Capital inflows into India will chase banking stocks, which are attractively valued, triggering a rally in the sector,” said Dr. V K Vijayakumar of Geojit Financial Services.
Banking sector is doing well with impressive credit growth and declining provisions. “While this growth has mainly been led by the retail book, corporates are expected to contribute to this growth in the upcoming year in the form of private capex. Next couple of years the provisioning is expected to be lower,” Ajit Banerjee, Chief Investment Officer of Shriram Life Insurance Company, points out.
Within bank stocks, he is more comfortable with large private sector banks where market share has increased consistently both on deposits as well as advances side, NPAs have improved and have better underwriting capabilities as well as ALM positions.
The energy sector is expected to perform well in the near to mid-term unless there is an acute raw material crisis leading to high costs and leading to under recoveries thus impacting the respective companies P&L.
“Developing the renewable energy sector in a massive and sustainable scale would require huge capital investment and technological advancement which would gradually evolve. Therefore, the shortfall in energy would be met by conventional energy sector companies for the next few years. Govt. of India has also mentioned the need to develop additional conventional energy sector capacity in the interim period,” Banerjee said.
As the prospects for RIL, Tata Power, NTPC and Coal India look bright, the energy index is expected to do reasonably well.
FMCG is likely to report moderate performance in Samvat 2080. “Rural demand is yet to pick up meaningfully and, therefore, the sector cannot be expected to outperform. But growth in tune with the long-term trend is achievable in Samvat 2080,” Vijayakumar said.
Factors such as persistent food inflation, uneven rains and rising prices of commodities might have a spill-over effect on demand going into the new Samvat as well. “If rural demand picks up then we can see improvement in FMCG sector stocks performance lest, it may remain subdued. Other factors which could gradually contribute to demand picking up would include election related stimulus, softer retail inflation and lower base,” Banerjee said.
Among others, the fund manager has picked auto, capital goods, cement and heavy engineering units like defence sector manufacturing enterprises and railway stock manufacturing among top bets for the new year.
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