As stock markets have reacted in a positive way to the poll results and indices are currently trading at all-time highs, a number of investors would be feeling left out from the markets. For them in particular and for investors in general the good news is that this Bull Market has now gathered enough strength and is likely to sustain for a few years more
As stock markets have reacted in a positive way to the poll results and indices are currently trading at all-time highs, a number of investors would be feeling left out from the markets. For them in particular and for investors in general the good news is that this Bull Market has now gathered enough strength and is likely to sustain for a few years more. So, although the initial leg of the rally is over, yet market experts believe it is still not too late to buy stocks.
Here are some of the top sectors to invest in for long-term growth:
1. Banking and Finance: Market experts are positive on the banking and finance space. They say post the demonetization worries, the finance sector (private banks and NBFCs) continues to remain in a bright spot due to a strong earnings outlook and benefits post demonetization of the formal financial system. Private banks could be perceived less riskier despite the premium valuations and opportunities are available in the mid-size players.
“Reasonably-valued NBFCs which have successfully overcome demonetization also provide a favorable risk-reward opportunity. We are cautiously optimistic on public sector banks despite the attractive valuations compared to private peers. Steps towards cleaning the balance sheet, strengthening the PSU banks through mergers and meeting the capital adequacy requirements will pave for significant growth opportunity and earnings revival in the long term, but we are watchful of how these developments evolve,” says Vinod Nair, Head of Research, Geojit Financial Services.
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2. Infra-Road: The infrastructure space is witnessing traction as the government is deploying more orders and is expected to stimulate the order book. Consequently this will provide scalability and visibility to the future revenue book.
The increased allocation for highway construction to Rs 64,900 crore in the current union budget has increased the outlook. The government had awarded 9,655-km of highways construction contracts till February out of a target of 25,000 km. The delay in clearances and land acquisition is a major issue for the slow pace in construction. The government is focusing on improving the pace of execution from the current rate of construction of about 22 km a day to an ambitious target of 40 km a day through speedy approvals by giving more powers to NHAI.
3. Logistics: Implementation of Goods & Services Tax (GST) will be a game-changing event for businesses in general and organized logistics players. GST is expected to replace state and federal taxes and tariffs to a single tax at the point of sale. This will improve their operating cost due to the expansion in its revenue turnaround as deadlocks in goods movement are removed due to lower travelling time. “Expert estimates suggest that GST implementation can reduce the overall logistics cost by around 30-40 per cent. It would provide a boost to warehousing, supply chain management and third party logistic players (3PL) business. Additionally, GST will bring everyone into the tax ambit, which will reduce the share of unorganized sector in warehousing and transport. Cost of organized player will reduce due to rationalisation of taxes, which in turn will lead to reduction in price advantage enjoyed by the unorganised sector,” says Nair.
4. Defence: India’s 60%-70% defence requirements are currently met through imports. There is a major push from the government to reduce the import dependence to 30% by using indigenous capability. In line with this objective, high priority is given to defence under the “Make in India” initiative. For reaching this objective, GoI has allowed 100% FDI in defence. Further, as per new defence procurement policy, indigenously-designed, developed and manufactured products will be given the highest priority in procurement. As a result of this, the nation is witnessing higher order flows towards domestic companies and improved traction in terms of government intent towards finalizing delayed large orders.
5. Chemicals: Till recently, major global chemical giants met their sourcing requirements from China due to lower cost and favorable currency. During the recent time, there is higher regulatory compliance requirement in China, leading to higher cost for setting up of ETP (effluent treatment plant) along with related increase in labor and other cost. “MNCs are diversifying their RM sourcing arrangement from China and adding India as additional sourcing destination. Here stricter compliance was being already followed by the domestic companies. Government initiatives in the form of port-based chemical parks in SEZ, improvement in infrastructure, tax concessions; rationalization of duty structure, FDI relaxation, etc. would facilitate further growth of Indian chemical industry into a major chemical hub,” informs Nair.
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Apart from these sectors, there are some other sectors which appear to be attractive investment options in the current scenario.
“Generally the domestic economy-facing sectors should be favoured for investing. What has propelled the recent victory for the BJP is the success and popularity of various social initiatives like Swatch Bharat, Jan Dhan, and Ujwalla, among others. Therefore, one can expect more money and efforts behind Ganga river cleaning, financial inclusion, building of roads and toilets, distribution of cooking gas connections amongst the poor, and rural electrification. Therefor, stocks and sectors which benefit from this renewed focus should be preferred,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.
This includes quality stocks in sectors like cement, road construction contractors as well as equipment suppliers, sanitary and tile manufacturers, dredging companies, power equipment manufacturers, automobile and automotive component manufacturers, banks, NBFCs as well as companies which deal with consumption items used by the marginal and rural sections of the society.
Since private consumption is yet to pick up in a any significant way, it is clearly better to invest in places where the government is focusing its efforts on. “Besides the above-mentioned sectors, specific IT sector companies dealing with software and systems needed for Digital India Mission also make for interesting investment ideas,” says Kapur.