The stock market has been on a recent upswing with the Sensex touching fresh 52-week high 28,581.58 on Friday.
The stock market has been on a recent upswing with the Sensex touching fresh 52-week high 28,581.58 on Friday. This has come on the back of bullish prediction of economic growth. Monsoon has been good this year and the 7th Pay Commission pay hikes for Central Government employees are likely to boost consumer demand.
Here are 5 sectors that can give good returns from here on.
During April-June 2016, FMCG companies reported lower single digit growth on the top-line front due to poor consumer sentiments in the urban market and slowdown in rural demand. However operating margins improved by more than 150 basis points due to lower material prices which led to a double digit bottom-line growth for companies in the sector after four consecutive quarters of subdued performance. Going forward, we expect volumes to pick up on back of a good monsoon and implementation of the 7th Pay Commission which should translate into higher profitability for companies in the sector.
The last few quarters have seen lower revenue growth for media companies due to subdued ad spend by corporates. But in 1QFY2017, we have seen some recovery in the advertisement segment in case of both print as well as TV companies. Going forward, we expect likely enhancement in corporate earnings to boost the sector.
In the last one year period, a few pockets of the infrastructure sector like roads and highways, railways, and irrigation have seen uptick in awarding activity. However, execution in our view has lagged in case of some verticals, with the exception being roads. Benefit of increase in awarding and quicker payments has led to improvement in the financials of some engineering procurement and construction (EPC) companies, as is evident from their 4QFY2016 and 1QFY2017 results. In recent times we have been witnessing faster environment and forest clearances being granted to larger projects. Accordingly, we are of the view that surge in awarding momentum would likely extend to other sub-verticals. This coupled with the prevalent low interest regime and new infra financing avenues should lead to continued strong financial performance for EPC companies.
Banking and financial services
The banking space in India has been subject to enormous stress in terms of asset quality in the last two years. But now, there is more clarity having emerged in terms of asset quality, particularly so with private sector banks. While credit growth for the overall industry remains low at 10-11 per cent, private banks have been outperformers growing at more than 20 per cent. Within the BFSI space, housing finance companies (HFCs) have been clear winners with strong earnings growth and stable asset quality. We believe selective HFCs and private banks along with the newly listed microfinance companies have the potential to deliver impressive performances in the years to come.
Auto industry has continued on its recovery path this year. With the implementation of 7th Pay Commission and expectation of robust monsoon the sector may see improvement going forward. However, M&HCV volumes remained affected due to lower freight rates and heavy rains in some states. Nevertheless, pick up in infrastructure activities and replacement demand should revive volumes in the CV space, although moderately, going ahead.
(The author is VP and head of research at Angel Broking)