Stock markets across the world are doing well from the last few months as the global economic conditions are improving. Major market indices across the world are quoting at their highest levels since the recession started in October last year. The domestic markets are also quite bullish and are scaling new highs.
Here is an out look on some significant sectors in the short to medium terms:
The demand in the auto sector has picked up during the last few months, supported by the boost from the government’s stimulus package, and low interest rates. Operational parameters like capacity utilisation and cost of operations have also improved in auto companies. Backed by good performance and month over month sales data, stocks in the auto sector have showed an uptrend during the last few months. Therefore, the valuations in the auto sector stocks are no longer cheap at the current levels. Those invested in auto stocks at lower levels can book some profits and hold the remaining with a tight stop loss target.
The banking sector is currently under performing the market due to concerns like low credit off-take (especially in the retail segment). More liquidity in the banking sector is also an area of concern. Demand in the retail loan segment is expected to go up during the festival season. Investors can accumulate potential stocks in the banking sector during market corrections.
Stocks in the FMCG sector are out of favor in the current bull run as this sector is labeled a defensive sector. However, the continued focus of the government on rural areas, lower penetration and consumerism would aid the FMCG sector in its growth. Investors can diversify their portfolios by adding stocks of blue chip FMCG companies.
Information Technology (IT):
Stocks in the IT sector are influenced and governed by the economic news, data and developments in the developed countries as a significant part of IT companies’ revenue comes from developed nations. IT stocks have also appreciated quite a bit in the last few months due to the improved economic conditions in the developed nations. Investors should exercise caution in taking fresh positions in IT sector stocks. There are many concerns that need to be addressed in the IT sector like increased competition, sustainability of growth in the developed economies and rupee appreciation.
Power is one of the sectors that have a huge potential to grow here. However, it requires huge investments to execute the various on going projects. With a stable government at the centre, investors can expect more reforms and ease in terms of structural issues to execute these projects. The good response to the recent IPOs of power companies proved the demand for potential stocks in the power sector. Investors with a long term horizon can accumulate stocks in the power sector at dips.
Stocks in the metals sector out-performed the broader market indices in the recent bull run. The outlook for this sector (especially steel) remains quite positive as analysts expect many measures from the government. Analysts are expecting the government to impose an import duty on various metals (especially steel and aluminum) which would protect the domestic industry from cheaper imports. Also, increased infrastructure spending is expected to provide a cheer to the sector.
Real estate and infrastructure:
The real estate sector has been quite volatile during the last few weeks. As the economic conditions are improving, renewed activity is being witnessed in the real estate market. Real estate companies are coming out with attractive offers to attract buyers in the forthcoming festival season. However, the valuation of real estate stocks has gone up quite significantly in the last few months. Investors should accumulate real estate stocks during correction phases.
Leading telecom companies here are expected to give good returns in the medium to long term, backed by the revenue growth supported by a strong growth in their wireless subscriber base. This is one of the fastest growing mobile markets in the world. However, the profitability is expected to fall in the short term due to the growing number of low-end subscribers, network expansion costs and increased competition. The outlook of the telecom sector is quite stable and investors should look at investing in telecom stocks with a long-term perspective.