Stock markets have gone up very sharply in the last six months with almost all indices generating good returns. However, given the fickle nature of liquidity and sentiments, experts advise investors to be cautious and also insure the downside risk to their portfolios in the short run with the help of a suitable F&O (futures & options) strategy. At the same time, however, experts remain optimistic about the potential returns which this bull market can generate in the long run. Their optimism stems from the government move to infuse growth in the economy, both through the fiscal and the monetary initiatives. According to their suggestion, the sectors linked to the economic recovery are the ones which look attractive at the current juncture.
1) Banking:
One sector which is likely to benefit on the back of economic up-tick is banking. A lower credit to GDP of 6% for India is significantly lower than its peers and augurs well for the long-term growth of the sector. In near term, a higher credit off-take from the industries and the retail segment is expected in 2HFY2010, which is expected to benefit the banking sector.Further, on the asset quality, the concerns on the rise of NPAs have receded to a large extent on the back of expected revival in the economy. Thus, we are positive on the banking space with a preference towards private banking companies, which have a better growth and profitability outlook.
Top Picks: SBI, ICICI, HDFC Bank, Axis bank, Allahabad bank, Bank of Rajasthan, BoB.
2) Auto:
The auto sector has been the beneficiary of the first round of up-tick in the economic activity. Generally also, demand for automobiles is linked to economic growth and rise in income levels. Per capita penetration at seven cars per thousand people is among the lowest in the world. Further, development of highways and roads, rural economy progress, increasing per capita income and higher disposable incomes among the youth are all positives for the sector.
In the segment, recommend buying into the commercial vehicles space, which is showing signs of a pick-up and provides a good risk-reward opportunity,
Top Picks: Maruti, Tata Motors, M&M, Bajaj Auto, Hero Honda.
3) IT:
Well-established and well-managed Indian companies have moved up the value chain in the last couple of years. So, the leading Indian software solution providers are not only cost effective but also extremely competitive and deliver quality services which their respective vendors have got accustomed to. Restructuring of leading global financial and corporate institutions will require a lot of software inputs. This is likely to substantially increase the business opportunities available for well established Indian IT companies.Also, domestic IT opportunities are likely to expand in a big way as substantial efforts are made to improve our infrastructure and revive our education system and health facilities. Insurance and banking are two other areas where a lot of IT services will be required.Majority of IT companies have good amount of cash in their balance sheets. Moreover they do not need capital to survive and grow their business. Cash is an extremely important asset in today’s volatile economic environment. This coupled with well-respected management and high corporate governance standards which many of the leading software companies adhere to, makes them an optimal choice for investors.
Top Picks: Infy, Tech Mahindra, TCS, ICSA India, KLG Systel, Glodyne Technoserve,
4) FMCG & Consumer Goods:
The various stimulus packages announced by government, thrust on rural development and the higher Sixth Pay Commission are expected to play a crucial role in boosting aggregate consumption demand in the Indian economy. Further, all the above factors would increase the disposable income of relatively young consumers and thus increase their purchasing power.
Top Picks: HUL, Marico, Videocon Ltd., Whirlpool Ltd., Godrej Consumer, ITC
5) Media & Entertainment:
The Indian media and entertainment industry is one of the fastest-growing industries in the country. With the growing popularity of Indian content in the world market in general and South Asia in particular, the Indian entertainment industry players are venturing abroad to tap this booming segment. This segment, therefore, also looks attractive.
Top Picks: Adlabs, Sun TV, NDTV, TV 18, Deccan Chronicle, Jagran Prakashan, Zee Ent, UTV, Hinduja Ventures.
6) Pharma:
The great outsourcing story of India still remains intact and moreover is finding recognition in more countries and business segments than ever before. For instance, outsourced manufacturing activities by global pharma firms are projected to increase to $31 billion by 2010 (Source: KPMG-CII Report). By maintaining lean cost structures and standing up to intense rivalry in the global contract research and manufacturing space, Indian firms have become an integral part of the global pharma manufacturing value chain, and can also be taken into consideration for investment.
Top Picks: Cipla, Ranbaxy, Sun Pharma, Dr. Reddy’s, Biocon, GSK Pharma, Dishman Pharma, Divi’s Lab.
7) Education:
The education sector also seems to be a good bet at the moment.We expect various reforms in the education sector with the Right to Education Bill all set to be enacted and new HRD ministry’s belligerent 100-day agenda. Further, the ministry has been keen to open up the education sector to foreign and private players. This will attract huge investment in the education & training sector.
Top Picks: Educomp Solutions, NIIT, Aptech, Core Projects & Tech.
8) Sugar:
The sugar production estimates for SY09E have been lowered to 15-15.5mn tonnes. If we add 15.5mn tonnes to the opening inventory of 8mn tonnes and further 1.5mn tonnes of imported sugar, the total available sugar in the current season would be around 25mn tonnes against the annual domestic demand of 22.5-23mn tonnes. Closing inventory would fall to less than two months of consumptions, putting the supply-side in a precarious situation for the next year.Sugar shortage will be more acute in the next season SY10E (Oct’09 to Sept’10), due to lower production during SY09E and exhausting the opening inventory to meet the annual demand. This should keep the sugar prices firm next year as well. Hence outlook for sugar companies remain positive.
Top Picks: Bajaj Hindustan, Balrampur Chini, EID Parry, Shree Renuka Sugar, Triveni Engg.
9) Metals:
China's economic stimulus plan and robust outlook for metals demand in China should give a needed boost to already buoyant industrial metals market. The world's fastest growing economy is dependent largely on other countries to meet its annual demand for base metals. Despite higher inventory levels in base metals, the prices have rebound from the lower levels and sustenance of demand from China is crucial going forward. The larger players producing metals such as aluminium, copper, zinc, steel and iron ore appear to benefit largely due to revival in the Chinese economy, and also seem to be a good bet.
Top Picks: Sterlite, Hind Zinc, Sesa Goa, Tata Steel, SAIL, Jindal Steel, Bhushan Steel, Hindalco
10) Cement:
The domestic cement industry is expected to witness substantial bunching up of capacities over the next couple of years. As per the announced capacity additions plans, around 85mn tonnes of cement capacity is expected to come on-stream going ahead. However, assuming 20% slippage due to delays in equipment procurement, land acquisitions, fund raising plans, etc. such huge capacity addition (70mn tonnes) is bound to create an oversupply situation and exert pressure on the cement prices, according to Angel Broking. Still selected stocks can be bought in this segment too, provided one is looking for good returns in the long run.
Top Picks: ACC, Gujarat Ambuja, JP Associates, Dalmia cement, Ultratech, Shree Cement, Birla Corporation, OCL India.
1) Banking:
One sector which is likely to benefit on the back of economic up-tick is banking. A lower credit to GDP of 6% for India is significantly lower than its peers and augurs well for the long-term growth of the sector. In near term, a higher credit off-take from the industries and the retail segment is expected in 2HFY2010, which is expected to benefit the banking sector.Further, on the asset quality, the concerns on the rise of NPAs have receded to a large extent on the back of expected revival in the economy. Thus, we are positive on the banking space with a preference towards private banking companies, which have a better growth and profitability outlook.
Top Picks: SBI, ICICI, HDFC Bank, Axis bank, Allahabad bank, Bank of Rajasthan, BoB.
2) Auto:
The auto sector has been the beneficiary of the first round of up-tick in the economic activity. Generally also, demand for automobiles is linked to economic growth and rise in income levels. Per capita penetration at seven cars per thousand people is among the lowest in the world. Further, development of highways and roads, rural economy progress, increasing per capita income and higher disposable incomes among the youth are all positives for the sector.
In the segment, recommend buying into the commercial vehicles space, which is showing signs of a pick-up and provides a good risk-reward opportunity,
Top Picks: Maruti, Tata Motors, M&M, Bajaj Auto, Hero Honda.
3) IT:
Well-established and well-managed Indian companies have moved up the value chain in the last couple of years. So, the leading Indian software solution providers are not only cost effective but also extremely competitive and deliver quality services which their respective vendors have got accustomed to. Restructuring of leading global financial and corporate institutions will require a lot of software inputs. This is likely to substantially increase the business opportunities available for well established Indian IT companies.Also, domestic IT opportunities are likely to expand in a big way as substantial efforts are made to improve our infrastructure and revive our education system and health facilities. Insurance and banking are two other areas where a lot of IT services will be required.Majority of IT companies have good amount of cash in their balance sheets. Moreover they do not need capital to survive and grow their business. Cash is an extremely important asset in today’s volatile economic environment. This coupled with well-respected management and high corporate governance standards which many of the leading software companies adhere to, makes them an optimal choice for investors.
Top Picks: Infy, Tech Mahindra, TCS, ICSA India, KLG Systel, Glodyne Technoserve,
4) FMCG & Consumer Goods:
The various stimulus packages announced by government, thrust on rural development and the higher Sixth Pay Commission are expected to play a crucial role in boosting aggregate consumption demand in the Indian economy. Further, all the above factors would increase the disposable income of relatively young consumers and thus increase their purchasing power.
Top Picks: HUL, Marico, Videocon Ltd., Whirlpool Ltd., Godrej Consumer, ITC
5) Media & Entertainment:
The Indian media and entertainment industry is one of the fastest-growing industries in the country. With the growing popularity of Indian content in the world market in general and South Asia in particular, the Indian entertainment industry players are venturing abroad to tap this booming segment. This segment, therefore, also looks attractive.
Top Picks: Adlabs, Sun TV, NDTV, TV 18, Deccan Chronicle, Jagran Prakashan, Zee Ent, UTV, Hinduja Ventures.
6) Pharma:
The great outsourcing story of India still remains intact and moreover is finding recognition in more countries and business segments than ever before. For instance, outsourced manufacturing activities by global pharma firms are projected to increase to $31 billion by 2010 (Source: KPMG-CII Report). By maintaining lean cost structures and standing up to intense rivalry in the global contract research and manufacturing space, Indian firms have become an integral part of the global pharma manufacturing value chain, and can also be taken into consideration for investment.
Top Picks: Cipla, Ranbaxy, Sun Pharma, Dr. Reddy’s, Biocon, GSK Pharma, Dishman Pharma, Divi’s Lab.
7) Education:
The education sector also seems to be a good bet at the moment.We expect various reforms in the education sector with the Right to Education Bill all set to be enacted and new HRD ministry’s belligerent 100-day agenda. Further, the ministry has been keen to open up the education sector to foreign and private players. This will attract huge investment in the education & training sector.
Top Picks: Educomp Solutions, NIIT, Aptech, Core Projects & Tech.
8) Sugar:
The sugar production estimates for SY09E have been lowered to 15-15.5mn tonnes. If we add 15.5mn tonnes to the opening inventory of 8mn tonnes and further 1.5mn tonnes of imported sugar, the total available sugar in the current season would be around 25mn tonnes against the annual domestic demand of 22.5-23mn tonnes. Closing inventory would fall to less than two months of consumptions, putting the supply-side in a precarious situation for the next year.Sugar shortage will be more acute in the next season SY10E (Oct’09 to Sept’10), due to lower production during SY09E and exhausting the opening inventory to meet the annual demand. This should keep the sugar prices firm next year as well. Hence outlook for sugar companies remain positive.
Top Picks: Bajaj Hindustan, Balrampur Chini, EID Parry, Shree Renuka Sugar, Triveni Engg.
9) Metals:
China's economic stimulus plan and robust outlook for metals demand in China should give a needed boost to already buoyant industrial metals market. The world's fastest growing economy is dependent largely on other countries to meet its annual demand for base metals. Despite higher inventory levels in base metals, the prices have rebound from the lower levels and sustenance of demand from China is crucial going forward. The larger players producing metals such as aluminium, copper, zinc, steel and iron ore appear to benefit largely due to revival in the Chinese economy, and also seem to be a good bet.
Top Picks: Sterlite, Hind Zinc, Sesa Goa, Tata Steel, SAIL, Jindal Steel, Bhushan Steel, Hindalco
10) Cement:
The domestic cement industry is expected to witness substantial bunching up of capacities over the next couple of years. As per the announced capacity additions plans, around 85mn tonnes of cement capacity is expected to come on-stream going ahead. However, assuming 20% slippage due to delays in equipment procurement, land acquisitions, fund raising plans, etc. such huge capacity addition (70mn tonnes) is bound to create an oversupply situation and exert pressure on the cement prices, according to Angel Broking. Still selected stocks can be bought in this segment too, provided one is looking for good returns in the long run.
Top Picks: ACC, Gujarat Ambuja, JP Associates, Dalmia cement, Ultratech, Shree Cement, Birla Corporation, OCL India.
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