Themes and sectors likely to witness heavy demand this Samvat 2080

By Siddhartha KhemkaIn Samvat 2079 Indian equities touched the milestone of 20,000 in Sep’23 and ended the year (24th Oct 2022 – 30th Oct 2023) on a healthy note. Nifty-50 made a new high of 20,222 mark and gained 9% during the Samvat 2079. Nifty Midcap 100/Nifty Smallcap 100 sharply outperformed, rallying 26%/31% respectively. Resilient economic conditions, healthy corporate earnings, six straight months of FII inflows (Mar-Aug’23), all-time high SIP flows, and notable retail participation drove the overall market performance. Further, moderation in inflation and expectations of peak-out of global interest rates in the last few months supported equities.

Samvat 2080 would commence with several important states going into election in Nov-Dec’23, which would set the stage for General Election in May 2024. History is in favor of a pre-election rally, where Nifty has rallied 10-35% in the six months ahead of election (Nov-May period) for the last five consecutive Lok Sabha elections (i.e. from 1999 to 2019).

Amidst these uncertainties, India continues strengthening its global positioning. It successfully hosted G-20 summit recently and has struck many global deals. The economic data-points remain resilient month after month, boosting overall investor sentiments and confidence. Even the corporate earnings maintained its healthy trend. Nifty earnings grew at 19% CAGR over FY20-23 and we expect this momentum to continue with growth of 18% CAGR over FY23-25.

Further China’s economic slowdown is becoming a boon for India as latter is emerging as a preferred location for the global corporates’ China+1 strategy. Government’s impetus on indigenization, import substitution and export boost through Make in India, PLI schemes and various other support programmes has put India in a sweet spot.

In Samvat 2080, given the multiple global headwinds and major event of general Lok Sabha election, volatility is likely to remain but directionally, we believe, overall trend should remain positive. Nifty is trading at a 12-month forward P/E of 17.6x, which is at a 13% discount to its 10-year average, thus providing comfort. We believe that over the next couple of quarters, sector rotation could be an important driver than the general market uptrend. We also believe valuations will become an important driver for stock picking to drive outperformance given the divergence seen so far.

This Samvat 2080, we believe an investor can look at the themes like financials, industrial, consumption and clean energy. Financials especially PSU Banks and NBFCs continue witnessing robust loan growth while asset quality remains healthy. Valuations on the other hand are reasonable especially after the recent underperformance.

Various sectors in consumer discretionary – Auto, Hotels, Jewellery, real estate, Building Materials, etc. are witnessing healthy demand which is likely to continue given India’s resilient economy and strong demographics. Industrials is well positioned to benefit from capex push, focus on indigenization, PLI schemes to strengthen the manufacturing base, strategic global technology tie ups, and focus on increasing exports.

(Siddhartha Khemka, Head of Retail Research, Broking and Distribution, Views expressed are the author’s own. Please consult your financial advisor before investing.)