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Jerky market getting on nerves? Go for these 5 themes and sit tight

A bounceback in economic growth is likely to benefit sectors such as consumer discretionary, infra as well as railways, defence, NBFCs, auto and private banks.

, ET Online|
Last Updated: Jun 13, 2016, 01.14 PM IST
A bounceback in economic growth is likely to benefit sectors such as consumer discretionary, infra as well as railways, defence, NBFCs, auto and private banks.
A bounceback in economic growth is likely to benefit sectors such as consumer discretionary, infra as well as railways, defence, NBFCs, auto and private banks.
NEW DELHI: When you are in the world’s fastest growing economy, which has officially crossed the $2 trillion GDP mark, there is a strong case for tilting your portfolio towards cyclicals or sectors that are likely to benefit from a rise in economic growth.

Latest data from the government showed that the economy grew 7.9 per cent in the fourth quarter of 2015-16, taking the overall GDP growth to a five-year high of 7.6 per cent in financial year 2015-16, mainly on account of the good performance of the manufacturing sector.

Experts say India can add the next trillion dollar to its GDP in next four years. “We see the $2 trillion number as a positive, and our next trillion dollar forecast is delayed by a year or two. But we expect the next trillion dollar to come in next four years subject to USD-INR being stable,” said Ravi Shenoy, VP-Midcaps Research, Motilal Oswal Securities.

"If the Finance Minister does manage to get GDP to the $5 trillion number in a few years, it would be a great effort. A per capita income of over $2000 in the next few years can have huge positive implications for consumer-linked as well as other sectors,” he said.

Most experts see India’s growth rate hitting the 8 per cent mark this financial year. A bounceback in economic growth is likely to benefit sectors such as consumer discretionary, infrastructure as well as railways, defence, NBFCs, auto and private sector banks.

"India’s GDP growth is set to cross 8.1 per cent in FY17 on the back if the visible pickup in consumption demand for cement, oil and electricity along with stronger-than-anticipated fourth quarter corporate earnings are good indications,” Yes Bank said in a report.

If you were to pick specific themes to ride this momentum, the following five could easily top the list.

Consumer discretionary: Consumer discretionary companies are those which sell non-essential goods such as auto, white goods and consumer durables. These services are likely to pick up momentum as the economy gains strength because that will also lead to increase in per capita income.

"The bets have to continue in sectors like consumer discretionary assuming that you will get the pay commission pay outs at some stage, OROP has already probably started," said Anand Tandon, an independent analyst.

"Investors have to look at those places where the government continues to spend money. So, things where infrastructure, cement, domestic financials especially in terms of those related to rural India those will continue to remain places which will continue to attract investor interest," he said,

Infrastructure theme: If you are betting on the economy, infrastructure stocks have a much bigger role to play and no investor can ignore this theme because it could well become the next multibagger. A pickup in growth in this sector is a clear sign that economic activity is picking up momentum.

"Defence is a long-term play, as we think definite progress is happening in that space. Other infrastructure areas such as railways will do well. Orders have started improving, especially for wagons and other equipment and that should benefit companies both in the construction space, in the track laying and also on the equipment side," Mahesh Patil, Co-Chief Investment Officer, Birla Sun Life, said in an interview with ET Now.

"The road sector has been seeing good order inflows and there are companies which are in the construction side," he said.

NBFCs: Microfinance institutions (MFIs) such as SKS Microfinance, Manappuram Finance, Bajaj Finance, Ujjivan and Equitas have managed to outperform the benchmark equity indices by a wide margin in last one year.

They appear to be in a sweet spot with better growth prospects, experts said. As the economy picks the pace, they are better placed in terms of distributing credit and do not have the overhang of bad assets compared with the private as well as public sector banks.

“NBFCs have performed extremely well and valuations have moved up significantly, the reasons are tight control on credit cost, higher spreads and ability to continuously find new markets and new segments to finance and grow,” said S Krishna Kumar of Sundaram Mutual Fund.

"While they are expensive from a near-term perspective, most of these companies are well run, and have one of the best quality managements of the country which can be compared and some even better than private banks," he said.

Auto space: A revival in economic growth should leave more disposable income in the hands of consumers and that should support growth in auto ancillary space other than automobiles. Auto ancillary names are more diversified and should grow more than two-wheeler or four-wheeler companies.

Vivek Mahajan, HoR at Aditya Birla Money, believes auto ancillary will be a multi-year growth story. "We believe auto ancillary is likely to be a multi-year story. That space should definitely be looked at for a person looking at medium to long term," he said.

Private sector banks: Banking is the backbone of a growing economy. If the economy is doing well directly means that the banking sector is in a good shape. Among the banks, analysts prefer private sector banks compared to PSUs largely on concerns of bad asset quality.

"From an investment perspective, there isn't anything at all in the public sector banking space that I would like to buy. I would still like to buy private sector banks because I do not think public sector banks can compete with the private sector banks," Rajat Sharma, CEO, Sana Securities said in an interview with ET Now.

"They (PSU) have not really upgraded their technology. There is a lot of impetus on social inclusion and stuff and private sector banks do not have that. So just one word of advice for somebody who is looking to invest money in banking space, you may want to trade the public sector banks from time to time but that is not really investment idea for me," he said.

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