The refrain on the street is tracking indices is a futile exercise as it disguises sectoral churn
The drivers of growth in the equity markets in future will be stocks in the financials services sector, in commodities and in the widely classified category called cyclicals.
According to the dominant view in the markets, tracking the benchmark indices alone is a meaningless exercise in the new paradigm as the performance of the index is disguising the sectoral churn in the markets and therefore, giving a misleading picture.
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At present, valuations of bank stocks, commodities and cyclicals are fairly low.
According to Manish Chokhani, director at Enam Securities, sectors such as fast moving consumer goods and media have already bottomed out.
Other sectors such as information technology and pharmaceuticals have still some way to go before they bottom out.
At present, banking and finance, commodities and cyclicals have a weightage of 12 per cent, 24 per cent and 10 per cent, respectively, in the S&P CNX Nifty.
Stocks from technology, media and telecom (TMT) have the maximum weightage in the Nifty, put collectively at 26 per cent.
The index has been weighted down by the bear market in information technology, communications and entertainment stocks, disguising the bull market in banking and commodity stocks.
Major losers among ICE stocks are Wipro, Infosys, Satyam, NIIT, Polaris and Zee Telefilms.
In the FMCG and pharma sectors, the major losers are Cipla, Pfizer, Wockhardt, Hindustan Lever, Glaxo and Dabur.
But banking and commodity stocks are actually showing an uptrend in the current year.
Enam Securities has listed strong retail growth, the asset reconstruction bill and unbooked treasury gains as the drivers behind the strong expected performance in banking stocks.
In the two-wheeler sector, there are demographic changes, low financing costs and exports.
Further, easy global liquidity will drive commodity prices higher. According to Chokhani, the regulatory environment has to be changed in order to facilitate more inflows into the capital market.
Optimally the capital markets should contribute around 25 per cent to the total Gross Domestic Product (GDP). At present, it does not even contribute 5 per cent to the GDP.
With interest rates declining and other forms of savings no longer lucrative, equities are the best asset class but to channel these savings into equities, the regulators should provide incentives for investors