Navigating H2 2024: Analysts identify key investment sectors and pitfalls to dodge

Despite significant volatility stemming from both domestic and global factors, Indian stock market benchmarks—Sensex and Nifty 50—achieved impressive gains in the first half of 2024. The Nifty 50 surged by 10.5 percent, reaching a record high of 24,174, while the Sensex rose by 9.4 percent, peaking at an all-time high of 79,671.58. These milestones underscore the resilience and optimism in the market amidst challenging conditions.

After strong returns in November and December last year, the Nifty 50 ended on a flat note in January, down 0.03 percent. It then gave positive returns for the next 3 months between February to April rising between 1-2 percent each, following positive macro data, rate cut expectations and certainty of Modi win in the Lok Sabha elections. May brought some election-related uncertainties, leading to a 0.33 percent decline in the Nifty 50. However, the index rebounded sharply in June, rising nearly 7 percent as Modi-led NDA formed a government for the third term and political clarity emerged.

Among sectors, The Nifty Realty index was the top performer, up over 41 percent followed by the Nifty PSE index and Nifty Auto, up over 35 percent each. Meanwhile, Nifty Pharma, Nifty Consumption, Nifty Energy and Nifty Metals advanced between 15-25 percent each. Nifty Bank and Nifty Finance jumped over 8 percent each and Nifty IT added 4 percent. Nifty FMCG was the only sector flat but in the red in the first half of 2024.

Looking ahead, the domestic market is anticipated to continue its upward trend in the next six months, driven by easing inflation, progress in the monsoon season, and robust economic growth. Additionally, discussions around potential rate cuts are likely to shape market sentiment.

As we move into the second half of 2024, market analysts are offering insights on which sectors are poised for growth and which ones investors should be cautious about. With a diverse range of opinions, experts weigh in on their preferred investment strategies and sectors to watch. Let's explore their recommendations.

Hemang Kapasi, Head of Equities, Sanctum Wealth prefers private banks, and chemicals sectors while suggesting avoiding capital goods, industrials, and PSUs.

With valuation across most sectors relatively on the higher side and reasonable growth expectations built in, we believe it’s prudent to have certain allocations towards sectors where earning expectations are relatively lower and the possibility of turnaround is on the anvil, like chemicals.

We shall reduce certain weights in sectors that have done exceedingly well over the last couple of years like capital goods, industrials, and PSUs even though the outlook is good it’s now more of a crowded space. We believe a more stock-specific approach needs to be adopted in these sectors rather than a top-down approach.

We have an anti-consensus allocation toward larger private sector banks. We are positive on the chemical sector as a space where capex has been done and cyclical recovery is likely to have started.

Keeping the election mandate in mind we believe the government will address to a certain extent rural distress which should be beneficial for some of the consumption-related sectors going ahead.

Sonam Srivastava, Founder and Fund Manager at Wright Research likes financial space, auto, and consumer durables sectors for H2 but advises avoiding IT and infra.

With a focus on navigating the potential headwinds in H2FY24, a strategic allocation across sectors might be prudent. Sectors positioned to benefit from a recovering economy could be prioritized. Banking and financial institutions stand to gain from loan growth, while consumer discretionary sectors like automobiles, durables, and leisure could see a rise in consumer spending. The pharmaceutical sector, known for its relative resilience during economic downturns, could also offer stability.

Caution is advised when considering currently overvalued stocks within sectors like information technology and infrastructure. These sectors, while having long-term potential, might be susceptible to corrections if interest rates continue to rise. Fast-moving consumer goods (FMCG) companies, due to their essential product nature, can provide a defensive hedge against potential market volatility.

Diwakar Rana - Fund Manager PMS Prudent Equity is bullish on banking, NBFC, HFCs and infra while recommending avoiding chemicals and textiles.

We still see a lot of potential and comfort in the valuation of the banking and NBFC sectors, which include microfinance and housing finance companies. Another area that we think could be a good investment is the infrastructure space. Industries such as chemicals and textiles continue to face challenges, and their growth shows no signs of improvement.

Ravi Singh- SVP, Retail Research, Religare Broking

Over the next six months, investors should consider focusing on Railways, Defence, Public Sector Units (PSUs), and IT. It's advisable to be cautious with investments in the real estate sector.

Aditya Khemka, Fund Manager, Incred AMC

Healthcare, FMCG and IT are our overweight sectors in the near term. We are underweight on manufacturing as valuations are discounting multiple years of high growth.

Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities likes Private banks and FMCG sectors for H2.

Private banks and FMCG are the two sectors that we are currently overweight on. Private banks have underperformed sharply compared to their public sector peers. Private banks are currently trading at comfortable valuations providing a margin of safety in the event of a risk-off event. FMCG stocks are likely to do well whether you like it or not but a coalition government will be forced to dole out populist measures to stay relevant amongst voters. We have already seen a series of populist measures from states which are soon going for elections. This trend will only gather pace leading to improvement in volumes for FMCG and consumption-related stocks.

Sumit Jain, Deputy CIO, ASK Investment Managers prefers manufacturing, defence, energy, infra and consumer discretionary sectors.

We continue to like businesses that are more domestically dependent. We expect continued government focus on infrastructure creation and Make in India. Businesses in the space of manufacturing, defense, energy transition, infrastructure, and consumer discretionary that have a long runway for growth are favored over businesses that can get impacted by global vagaries.

Tanvi Kanchan, Head - UAE Business & Strategy, Anand Rathi Shares and Stock Brokers

Domestic cyclical growth remains our most preferred theme, including sectors like power, manufacturing, infrastructure, capital goods and select consumer discretionary.

In summary, the investment landscape for the remainder of 2024 presents a mixed bag of opportunities and cautions. Private banks, chemicals, and consumer durables are among the favored sectors, while capital goods, IT, and real estate warrant a more cautious approach. A balanced and strategic allocation, considering both domestic growth and potential global risks, will be key for investors navigating the market in the coming months.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.