Nifty 50, the benchmark index of the Indian stock market, hovers near the 25,000 mark, enjoying solid support from retail investors. The durability of the Indian economy's growth has underpinned the optimism of domestic investors who have been relentlessly buying Indian equities despite valuation concerns.
The Nifty 50 has gained over 14 per cent this year so far, while the Nifty Midcap 150 and the Nifty Smallcap 250 indices have gained nearly 27 per cent each in the same period.
At a time when a majority of mid and small-cap indices are at frothy valuations, and many sectoral indices are near their record-high levels, it is essential to invest prudently to minimise the risk of losses.
Mint spoke to five experts to get their insights on sectors that still look attractive. Here's what they said:
From a one to two-year perspective, we prefer manufacturing and capex (capital expenditure) as themes over services and capex.
In our view, the best sectors to play in this are industrials, consumer durables, and real estate.
We see sustained multi-year earnings growth in these sectors, with compressed balance sheet risk and improving return ratios. In the short term, however, some of these sectors look overdone in terms of valuations despite the robust long-term outlook.
Tactically, we favour IT and FMCG in the short term as these sectors have been derated, and earnings momentum is changing.
I think investors already know the sectors that are poised for growth. Renewable energy is gaining more and more attention every day, so it can turn out to be very good in the next year.
Defence, too, is one of the themes that should be looked at, but one must go deep into the value chain to find fair-valued opportunities. One of my favourites is pharmaceuticals.
This sector was muted till last year, but we’re starting to see recovery now, and pharma is one of our top themes right now.
In light of these developments, market focus will likely shift towards defensive sectors from domestic cyclical sectors in the near future.
We believe NBFCs, telecom, consumption, IT, and pharma offer a higher margin of safety in the near term.
We recommend that investors stay invested in the market and maintain good liquidity (10 per cent) to take advantage of any market declines in a phased manner and build positions in high-quality companies with high earnings visibility over an investment horizon of 12-18 months.
Markets continue to hit record highs on the back of strong domestic inflows, positive global cues, and hopes of a US Fed rate cut.
The current rally spreads out across multitaps and sectors. Investors are advised to adopt a cautious approach and invest in tranches rather than go all out at current levels.
Sectors to focus on from a long-term perspective include defence, power, infrastructure, FMCG, automobiles, and pharma, to name a few.
The broad market valuations are currently high, but sectors with strong growth prospects, such as manufacturing, electronics, IT, renewables, healthcare, e-commerce, infra, agriculture, and consumption, remain attractive.
Some areas are expensive, so it is crucial to focus on stock fundamentals, avoid overvalued stocks, and adopt an accumulation strategy.
Targeting specific stocks and sectors is advisable.
To achieve better returns and ensure safety, consider rotating out of recent outperformers and shifting to value sectors, as overall market conditions are expected to improve in the coming years.
Further, the improvements in rural areas, agriculture, and government expenditure are anticipated to benefit sectors connected to the domestic economy, such as staples, FMCG, fertilizers, telecom, cement, pharma, and consumer services.
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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.
