From banks to IT, analysts bet on these sectors as markets hit record highs

A stupendous rally in the benchmark indices — the BSE Sensex and NSE Nifty50 — may take a breather going forward. This is because analysts believe that investors may book profits in sectors such as public sector banks (PSBs) and metals, which have seen an upswing since June lows.

“With the benchmark at a record high, improvement in the broader participation would play a critical role in shaping the market trend. We recommend following the trend and focusing on identifying the themes which could unfold ahead along with the present leaders,” said Ajit Mishra, vice-president of technical research at 

Religare Broking.

The Sensex saw a fresh record high of 62,448, and the Nifty50 hit a new 52-week high of 18,535 on Friday. They have surged 21 per cent, and 20.5 per cent, respectively, from their June lows.

Data from ACE Equity shows that metals, financials, and fast-moving consumer goods (FMCG) outperformed the frontline indices since the markets staged a turnaround. However, automobile, information technology (IT), real estate, and energy sectors underperformed.
 

Track LIVE market updates here
 

Between June 16 and November 25, the Nifty Metal, Bank, Financial Services and FMCG indices climbed 36.7 per cent, 31.8 per cent, 28.1 per cent, and 20.4 per cent, respectively.

Meanwhile, the Nifty Auto index added 18.3 per cent, Nifty Realty 17.8 per cent and Oil & Gas as well as IT indices added 12 per cent each.

Going forward, Deepak Jasani, head of retail research at HDFC Securities, expects capital goods, oil and gas, select cement players, and private banks to support the market rally. He said metals and PSBs may remain muted. The financial services sector holds the maximum weighting of 37 per cent in the Nifty50 index. The others are IT (14 per cent), Oil & Gas (13 per cent), FMCG (8.75 per cent) and Automobiles (about 6 per cent).

Within the Sensex pack, Reliance Industries (RIL), HDFC twins, ICICI Bank, Infosys, Tata Consultancy Services (TCS), ITC, Kotak Mahindra Bank, L&T, State Bank of India (SBI), Hindustan Unilever (HUL) and Axis Bank have weighting of between 3 per cent and 12.6 per cent.

This, analysts said, is possibly the reason why, despite the underperformance of IT and Oil & Gas indices, the benchmark indices are hovering near new highs.

 

“Looking forward, the rally in IT will continue as the stocks have been over-hammered even as demand held up decently during the July-September quarter. Besides, depreciation of the rupee against the dollar will help outsourcing and services-based Indian IT companies,” said G Chokkalingam, founder and chief investment officer (CIO) at Equinomics Research.

The banking and financial sector, too, will continue to outperform the markets as credit growth has surpassed pre-Covid levels.

The FMCG sector may remain sideways amid stretched valuations, Chokkalingam added.

“Among the underperforming sectors, investors can look at select real estate players and Reliance Industries from the energy pack,” he said.

Analysts said metals, state-owned oil marketing companies, and export/global economy-linked sectors may not see any meaningful rally in the near-term. This is due to fears of a global economic slowdown.

 

From a one-year perspective, analysts believe the Indian economy’s relative strength may push the benchmark indices to an uncharted territory in 2023. This may happen amid intermittent corrections.

Goldman Sachs expects the Nifty50 index to touch 20,500 by the end of 2023. Prabhudas Lilladher has set a target of 21,035 in its base case. Its bull case scenario pegs Nifty at 23,138, while bear case scenario results in a target of 16,828.

“The Indian market has been a strong outperformer, thanks to stronger domestic fundamentals but valuations have turned expensive compared to global peers. The superior earnings growth outlook appears priced in, as the market trades at 22 times forward P/E, 30 per cent above the long-term average. It is at an elevated P/E premium of about 80 per cent versus the MSCI Asia ex-Japan region,” Goldman Sachs strategists said.