Consumption theme has been the flavour on the bourses this year. Strong economic growth has helped sectors such as consumer durables, banking and auto to become top sectoral performers. The volatile market, on the other hand, has generated interest in defensive plays such as FMCG and healthcare. Realty and metal have underperformed.
The BSE Consumer Durables index has topped the returns chart (59.7%), followed by Bankex, FMCG, Auto and Healthcare. Eight sectoral indices have outperformed the BSE Sensex (returns of 10.78%) compared with six that have lagged behind. With negative returns of about 6%, Realty and Metal indices are at the bottom of the heap. Oil & Gas and Power have also given negative returns as well.
?Whenever the economy does well, purchasing power in both urban and rural areas improve. Consumers have more money in hand to make their daily purchases as well as big-ticket items,? said DD Sharma, VP ? research (retail), Anand Rathi Securities. The good monsoon across several parts of India has also buoyed consumer sentiment, he added. The volatile market has also led investors to more defensive sectors like FMCG, which has seen robust earnings growth this year.
The banking sector has been a major beneficiary of the pick up in economic demand as well, with several banking scrips touching new highs. For instance, public sector bank and India?s biggest lender, State Bank of India, touched an all-time high of Rs 3,175 on the BSE on 13 September. According to Sharma, the credit growth in the banking sector is proportional to the growth in the economy. ?The credit growth is generally three times that of GDP growth. At a growth rate of about 8%-plus, the credit growth should clock around 25-30% for the next few years,? said Sharma. According to Nischal Maheshwari, head ? research, Edelweiss, the banking sector was undervalued for quite some time and has picked up momentum of late. However, he admits that banking stocks look a tad expensive at present.
Sectors like realty and metals have been the worst performers this year. ?Metals are global commodities and unless the economic demand goes up significantly, prices are likely to remain weak. So, the stocks will continue to underperform,? said Sharma. According to Param Desai, an analyst at Angel Broking who tracks real estate, the debt overhang and the delay in projects are the key reasons why investors have been staying away from the realty sector. ?The demand in residential space has picked up, but the commercial and retail segment will still take about a year more to recover,? he said.