The quality and strength of the current Nifty rally is both surprising and awesome. What is amazing is that it is coming on the back of a very real possibility of a deep economic recession and a bear market in most of the developed world.
Ever since the advent of the FIIs in the Indian markets about 3 decades ago, their presence on both the buy as well as the sell side has been largely responsible for setting the trend. This is for the first time in as many years that a bull market has started here despite FIIs being mostly on the sell side over the past one year.
What also makes us stand apart is the sheer outperformance of our markets over the last one year in comparison to the rest of the world. With economic fundamentals also looking strong and corporate results robust, it is easy to presume that the bull market is here to stay.
Structurally this seems to be the beginning of a secular, multi-year bull market. As investors we need to focus on the blue chips in the domestic sectors. In other words, look for companies with strong fundamentals and earning revenues from domestic markets. Avoid export-oriented sectors like IT, pharma as well as commodity plays. Five sectors which can help you become rich in this market are:
1. Banks and Financials – After many years we have a great combination of credit cycle picking up and banks having cleaned their balance sheets. Valuations also appear attractive especially of public sector banks. The NBFC space also is buoyant with consumer spending picking up and leading players having the distribution and balance sheet strength to leverage this opportunity.
2. Engineering and Capital Goods – As mentioned earlier, credit cycle is picking up and one of the main catalysts is the pick up of capital expenditure in the economy. Also, a huge outsourcing opportunity in electronics as well as other technology-led industries is emerging due to the developed world looking for an outsourcing option other than China.
3. Chemicals – This is a sector which is benefitting in a big way as China is closing many of its chemical units due to pollution. Chemical companies are also getting headwinds as the developed countries are now determined to keep at least one more outsourcing hub other than China.
4. Automobiles – A huge demand especially for passenger cars is giving rise to excellant buying ideas in this sector.
5. Consumption – Whether it is travel or entertainment, white goods or fast moving consumer goods, domestic consumers are spending like never before. This sector presents investors with various marque companies having an excellent track record of wealth creation and future prospects.
Overall, India still remains a stock pickers market and investors can look forward to very bright prospects over the next few years.
(By Ashish Kapur, CEO, Invest Shoppe India Ltd)
Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before making any investment.