While investors can keep off defensive sectors like FMCG, growth sectors or cyclical sectors may represent an investment opportunity in the current scenario.
Sectoral investing is a time-tested way to not only diversify your holdings but also take advantage of sector-specific trends to suit your investment objectives. As the overall economy remains subdued under the current slowdown, certain sectors are showing signs that they may be ripe for the picking.
While investors can keep off defensive sectors like FMCG, growth sectors or cyclical sectors may represent an investment opportunity in the current scenario. This article lists a few of them.
Banking is a growth sector that has seen quite a bit of turbulence in recent years. Books of many banks are getting rid of toxic assets and the sector is slowly limping back to normalcy even as more Non-Performing Assets are tumbling out of the closet. The BSE Banking Index, which was on an uptrend since 2013, has shed almost 40% of its peak value of 36,961 in December 2019.
There may still be some more pain left for investors who are currently invested. However, the next few months should provide an opportunity for investors on the sidelines to get in on the action.
The Automobiles sector has been on a slide for the last two years or more. After a slowdown in 2018, passenger car sales in 2019 were depressed across the board for all major players. While FY2019 was flat in terms of production, FY2020 has seen a steep fall of 15%. Similarly, FY2020 has been a challenging period for two-wheelers.
Lower pace of infrastructure, traffic congestion, and lately, the Covid-19 crisis have put the brakes on the automobile sector. Also, the BSE Auto Index has possibly bottomed out or is in the process. This represents an investment opportunity for auto sector buffs to make selective investments in blue chip stocks that are trading at a low Price-to-Earnings ratio.
Consumer Durables sector
The Consumer Durables sector is a growth story that has still a lot of untouched potential. As per a recent IBEF report, the sector is set to double from Rs. 76,400 crores in 2019 to Rs. 1.48 lakh crores by 2025. While the urban markets for home appliances like TVs and air conditioners are nearing saturation, there remains huge untapped potential in rural markets for durables like refrigerators and consumer electronics.
On the stock markets, the BSE Consumer Durables Index has started on a downtrend since February of the year. This signals a weakening of sentiment following the Covid-19 crisis where consumers are expected to sit on cash, leading to weaker sales. This is bound to resume its upward trajectory from 2021 onwards once consumers adjust to the new normal and consumerism takes over once again. Investors can wait for lower prices and spread their stock buys over a few months on the downswings.
Information Technology sector
Predominantly an export sector, the Indian IT sector has been badly hit. With over three-fourths of the IT and BPO industries now working from home due to the Covid-19 crisis, data security and privacy has come into focus, along with challenges of individual accountability and ownership. With job cuts and pay freezes taking center stage, the industry is poised to cut operational flab, sharpen operational efficiency, and revamp its delivery model.
From an investment perspective, the IT sector has always been a sunrise sector. The BSE Information Technology Index has tripled in the last ten years. However, there has been a weakening in the last two years, with some large cap stocks now trading at a fraction of their 2-year highs. The sector remains choppy currently, so investors can wait and watch before snapping up low-priced majors.
Before taking any investment decision, study the markets, align your decision with your financial goals, and take objective decisions.
(By Hemanth Gorur, Co-founder, Hermoneytalks.com)
Disclaimer: This is the personal view of the author. Readers are advised to consult their financial advisor before making any investment