Domestic stock markets were not too enthused by the Reserve Bank of India’s 25 basis points rate cut. Global cues did not help either as market benchmark Sensex plunged 516 points on Tuesday, the highest in nearly two months, to slip below the 25,000-mark with banking stocks taking a big knock.
However, a survey by the Indian Association of Investment Professionals (IAIP) showed that nearly 57.26 per cent of the investment professional expect “generous gains in equity indices, with BSE Sensex predicted to climb 11 per cent from the current 25,000 level”.
With the help of some brokerage houses we tried to find sectors that offer good investment opportunity in the new financial year 2016-17.
Vaibhav Agrawal, VP & Head of Research, Angel Broking
Road infrastructure sector
Indian road sector is showing signs of revival drawing on several measures announced by the government over the last 18 months including a policy decision to award projects only after acquisition of 80 per cent of land. There has been a 69 per cent increase in project awards by National Highways Authority of India (NHAI) during the first eight months of 2015-16 to 2,649 km from 1,572 km in the same period of the previous fiscal.
Companies from the roads and highways sector would benefit on account of higher government spending towards the sector.
Housing Finance Companies
Lowering of interest rates and economic revival could give big push to housing market, which should also benefit Housing Finance companies.
Stocks to bet: In the roads and highways space, Angel Broking has a ‘Buy’ rating on IL&FS Transportation Networks (ITNL) and KNR Construction, with price target of Rs 93 and Rs 603, respectively. Whereas, in the Housing Finance space, it has ‘Buy’ rating on LIC Housing Finance Ltd with a target price of Rs 592.
Mustafa Nadeem, CEO, Epic Research
Construction and IT
In 2016-17, construction and IT will be providing double digit returns. Construction and contracting has been attractive space with pickup in demand and investments along with good order inflows. This sector can be a decent investment theme after likely double-digit growth in coming years along with IT companies engaged in SMAC (social, mobile, analytics and cloud).
Stocks to bet: Epic Research is bullish on ITD Cementation and Dredging Corp shares for FY17.
Metal is another attractive sector technically at this point of time. With global commodities bottoming out on bigger timeframe charts, keeping that in perspective, some stocks are in oversold territory and should be added in portfolio for short term time horizon.
Stocks to bet: Epic is bullish on Hindalco and Tata Steel.
Siddhartha Khemka, head – research (Wealth), Centrum Broking
Pharma, Speciality Chemicals, Defence and Textiles
Centrum Broking believes themes like consumption, infrastructure, defence, alternate energy, building materials should do well in FY17. Pent-up demand, implementation of 7th Pay Commission, and expectation of a better monsoon should drive consumption demand. While private spending and capex is still low, government’s focus and increased spending in sectors like road infra, power infra, alternate energy, defence, low-cost housing should help drive demand in those sectors. Also export- oriented companies like pharma, speciality chemicals and textiles are likely to give decent returns.
Stocks to bet: Centrum Broking likes Ahluwalia Contracts, MM Forging, JK Cement, Welspun India, Techno Electric, Sanghvi movers.
Aasif Hirani, director, Tradebulls is bullish on:
Healthcare has become one of India’s largest sectors – both in terms of revenue and employment. Global healthcare and wellness is a $7.4 trillion industry, second only to the food and agro industry. The sector, which was at $73.92 billion in 2011, is expected to grow at a CAGR of 16 per cent to $280 billion in 2020. After IT, healthcare can be the other sector where India can dominate the world. Tradebulls expects revenue growth of around 14-17 per cent in private healthcare sector following significant capacity expansions and better utilisation of facilities. Investment opportunities in the Indian healthcare sector have increased significantly and the sector is expected to be one of the most attractive investment targets for private equity and venture capital companies. Medical tourism is rising as India is considered to be best in health care delivery system.
India’s civil aviation industry is on a high-growth trajectory. India aims to become the third-largest aviation market by 2020 and the largest by 2030. In January 2016, domestic air passenger traffic rose 23 per cent to 7.66 million from 6.25 million during the same month of last year. Passenger traffic during the January-December 2015 increased at a rate of 20.3 per cent to 81.1 million from 67.4 million in the corresponding period a year ago. Despite economic challenges, domestic travel capacity is increasing significantly. Aviation stocks are available at reasonable valuation and this sector is expected to grow comprehensively.
Consumer discretionary sector
The growing purchasing power and rising influence of social media have enabled Indian consumers to splurge on good things. The Government has allowed 100 per cent Foreign Direct Investment (FDI) in the electronics hardware-manufacturing sector through the automatic route. The government has also enabled 51 per cent FDI in multi-brand retail and 100 per cent in single-brand retail so as to attract more foreign investment into the country. Interest rates over the next 12-15 months are expected to trend down in India which will give boost to consumer discretionary sector. Apart from that, the 7th Pay Commissions has come into effect and second boost will come from the One Rank-One Pension (OROP) recommendations. Monsoon is expected to be better this time around. If that turns out to be the case, rural discretionary spending will be much better than what we saw over the past two years and will also boost consumer discretionary sector.
Stocks to bet: Tradebulls does not recommend individual stocks