Indian Stock Market – Best Sector to invest in 2018
Indian Stock Market is currently going under a corrective phase. Sensex is fallen almost 2000 points from its all-time high. There has been multiple reasons supported this fall like negative global cues coupled with adverse domestic developments and subdued third quarter numbers from corporates. Now since the fall has been started, the equity markets may continue to remain under pressure in the near-term also.
However, it is also expected that late in the year 2018 and 2019 some positive momentum may also not be ruled out. Stock market may face some head winds immediately before the general assembly elections scheduled for 2019.
The current fall and any further weakness in the near-term provide a window of opportunity to enhance allocation to good quality stocks.
Indian stock market has following best sectors to invest in 2018 post recent correction:
Private sector banks:
The devil of government banks again rocked the stock market after clearing some dust from long pending corporate scams. Nirav Modi shake the market after a huge scam identified with one of the biggest and oldest bank in India.
However, all this story will break the confidence of retail investors from the banking system specially from PSU banks and the private banks will come out as the beneficiary out of this trust break down by PSU banks. Therefore, we remain positive on retail-focussed private sector banks as they have leveraged well on rising consumer affordability.
Retail assets of private banks such as auto loans, personal loans, consumer durable loans, credit cards and housing loans have grown at a robust 20-25% rate which is likely to continue given low penetration levels.
The important stocks from this sectors will be Indusind Bank, HDFC Bank, Yes Bank, Kotak Mahindra Bank and DCB Bank because these banks have strong balance sheets and adequate capitalisation levels, thereby enabling them to participate in the impending capex cycle recovery, the signs of which are nascent at this stage.
We have recently witnessed a strong appreciation in the United States Dollar and some weakness in Indian Rupee after a very long bull run. Considering the US job data and salary data, global growth outlook continue to improve and may get more stronger in coming days. All these factors worked positive for the IT sector.
We expect global IT spend, particularly in the BFSI sector that has led technology adoption, to increase as confidence improves. In India, rapid digitization is likely to continue to fuel spending on mobility, analytics, and Cloud.
Top IT sectors having huge exposure in US and European markets like TCS, Infosys, Tech Mahindra, HCL Tech all may continue to outperform the Indian stock Market. Further, a more stock L&T Technology is also looking promising for medium term.
There are many stocks in this sector which have great potential and after current crack down in the market available at a good valuation also. The sector has provided excellent return in past 1-2 years and it is still rightly expected that the sector will continue to outperform Indian Stock Market in coming 2-3 years atleast.
The earning of Indian middle class people is increasing regularly and the implementation of 7th Central Pay Commission will boost the demand of both two wheelers and four wheelers in Indian market.
If I have to name certain stocks in this sector, I would definitely name Maruti, Ashok Leyland, Motherson Sumi, Jamna Auto and Hero Motors. There are many small companies with excellent Return on equity and promising Management give hints of excellent future prospects. Stock identification in this sector will be the key for better return.
Engineering & Infrastructure:
Budget 2018 and 2017 had a great emphasis on developing the infrastructure in the country and companies which are associated to road, bridges and infrastructure development should remain in focus for one more year atleast. We have seen a good rally in the infrastructure stocks during past one year and almost similar kind of performance can be expected for 2018-19 also.
The government has laid out an ambitious plan for road infrastructure development in the country via the Bharatmala scheme, entailing a total spending of Rs 5.3 lakh crores, providing visibility for projects over the next five years. Order inflows of infrastructure companies have picked up, thereby providing revenue visibility.
Within this sector, we like high-quality companies with good corporate governance, strong execution track-record, healthy balance sheets and superior return ratios.