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Which sectors and companies should you invest in over the next year for maximum returns? Many experts agree that the Indian economy has bottomed out and that things will improve from here. What they disagree on is: when and how sharp this turnaround will be.
But from the limited perspective of stock market investments, the good news is that most sectors, beaten down by the slowdown, are expected to turn around. The trick will be to choose those stocks, within sectors expected to do well, that will give good, even double-digit returns.
“I continue to like the IT industry as it is moving up the value chain and the exchange rate is not its sole hope. Also, there is fresh inflow of orders from the European Union and the United States,” said Jayant Manglik, president, retail distribution, Religare Securities, who says TCS (closing price: `2108.3 on October 31, Infosys (closing price: `3,308.7 on October 31) and Wipro (closing price: `477.0 on October 31) still offer individual investors with significant potential room for gain.
Pharmaceuticals and FMCG are all-weather favourites with near-permanent recommendations for your portfolio because they reduce portfolio risk and volatility, noted Manglik.
Specifically for pharmaceuticals, the US Food and Drug Administration (FDA) has granted, or is expected to give, approvals that will help India’s pharma industry. Good monsoons have helped a revival in the FMCG sector. Lupin and Sun Pharma in pharma and HUL amongst FMCG stocks have potential to appreciate from current levels, feels Manglik.
The depreciation of the rupee value against the dollar are likely to help metal stocks. This is likely to help India emerge as a net exporter of steel, said Vaibhav Agrawal, vice-president, research, Angel Broking. Angel Broking is positive on Tata Steel, Hindustan Zinc and NMDC as preferred bets.
The auto sector is currently subdued but is expected see a revival soon. Tata Motors, buoyed by the continued good performance of its Jaguar Land Rover unit, is the near consensus pick among most analysts. Then, two-wheeler makers Bajaj Auto and Hero MotoCorp are also expected to do well over the next year.
Banks and non-banking finance companies (NBFCs) are the prime drivers of the India growth story.
“Aggressive lending is the key to India’s growth and the outlook for India’s finance sector comprising banks and NBFCs is very good,” said Manglik. IndusInd Bank, Axis Bank and Bajaj Finance have the potential to appreciate from current levels.
A surprise pick is the till now battered capital goods industry. Domestically, the index of industrial production data for the manufacturing sector may have shown a mixed trend but the large companies in the engineering space, such as Larsen & Toubro, have diversified into overseas projects. This is expected to help them post good results.
Also, the slew of clearances recently given by the Cabinet Committee of Investments to projects worth several lakh crore will soon start showing up as income on the books of India’s capital goods companies. And this will reflect in the share prices of companies in this space. “L&T is the preferred pick in capital goods,” said Manglik.
But there are caveats here. The infrastructure sector in India is expected to start posting robust growth only after the national elections scheduled for next year.