After playing safe due to the uncertainty over the Covid pandemic and sticking to defensive plays, such as healthcare and IT stocks, investors are now betting big on a cyclical recovery. Actually, investors are looking at the next avenues for growth. There are many stocks or sectors that have come out of hibernation after many years. Economic activity is likely to gather momentum as most states are gradually opening up with a drop in fresh Covid cases.
With the opening-up of the economy at states’ levels, the government’s higher allocation towards capital expenditures for FY22E should be helpful in driving economic growth in the coming days. Moreover with the expectations of a sharper-than-expected economic recovery back home, it is expected that economy-related sectors will continue to be in focus as global central banks continue with their easy money policies, which will ensure ample liquidity global markets, including India.
Moreover, the government’s focus appears to be shifting back towards growth. Its disinvestment agenda, privatisation of select public sector banks (PSBs) and focus on infrastructure are key steps that indicate that it is expecting faster growth in the economy. Besides, inflation is back and on the other side, there is a visible recovery in growth and demand. Undoubtedly, the government’s continuous spending on the infrastructure sector will support faster economic growth as it has a high multiplier effect due to the positive impact on other sectors.
Banks are seeing loan books grow across all major segments such as agriculture, retail, MSMEs and personal loans except corporate loans and advances to large businesses.
Base metals like steel have seen capacity utilisations moving up due to high demand. Even consumer discretionary specifically rural-focused ones and automobile sector, basically two-wheelers, are expected to see significant growth. However, as the pandemic is not yet out of the way, IT and healthcares sectors will continue to be on the investor radar.
Going forward, sectors like capital goods, construction materials, consumer services, transportation, financials and metals & mining will continue to do well and the reflation trade will hold sway. Financials should benefit from the rotation to economically sensitive sectors, and are one of the biggest beneficiaries of higher bond yields. Besides, investors should consider the role of commodities, especially oil & gas in portfolios, both as beneficiaries of faster economic growth and as a hedge against the risk of persistent inflation. Some of these sectors are also expected to see the most earning upgrades, making them a good bets in a portfolio.
With demand increasing steadily, economies re-opening and vaccination drive picking up pace, it is expected that the Indian economy will continue to see a sold revival. Undoubtedly, the ease of doing business, infrastructure creation and positive fiscal policies will help India becoming a $5 trillion economy by 2024-25. So, this could be a good time to invest in stocks of these flourishing sectors. However, one should do the due diligence on the fundamentals of such stocks before investing.
(DK Aggarwal is the CMD of SMC Investment and Advisors)
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