Which sectors to invest in? Read what experts say

After a turnaround in performance by Indian equity markets since July that has seen the S&P BSE Sensex and the Nifty50 wipe out the year-to-date losses, analysts suggest investors start nibbling into stocks that are focused on the domestic economy.

While they say intermittent corrections, led by policies of global central banks and other economic data, cannot be ruled out, analysts expect India’s relative outperformance among global equity markets to continue as it looks better placed with a healthy economic recovery, and remains one of the fastest growing major economies.

In this backdrop, Neeraj Chadawar, head of quantitative equity strategy at Axis Securities, believes that amid global slowdown, aggressive tightening by the central banks, and preference for domestic interests first (by the local government), export-oriented themes are likely to be muted or will deliver conservative returns in the near-term.

Thus, banks, auto, FMCG, hospitals, domestic industrials, and discretionary may continue to outperform the ‘export + cyclical’-oriented themes, he says.

According to Kotak Securities, risks to global equities include slowing of world gross domestic product (GDP) growth resulting in weaker demand (and its impact on corporate earnings), and uncertainty with respect to global energy situation.

“Higher energy prices have negative implications and the Indian economy does remain vulnerable with respect to inflation, current account deficit, corporate profitability and currency.

"Further, there is a risk from slowdown in global demand,” the brokerage said in a report.

Meanwhile, the recent turnaround in Indian equities has been triggered by strong foreign portfolio investments since July, drop in commodity prices — especially crude oil — and hopes of less aggressive rate hikes by the Reserve Bank of India (RBI) amid peaking of inflation and steady economic growth.

Among sectors, capital goods, power, consumer durables, metals, and realty sectors have done well since July 2022 with their respective indices rising between 22.5 per cent and 28.5 per cent, ACE Equity data show.

In comparison, the S&P BSE Sensex has gained around 12.6 per cent during the same period. At the other end of the spectrum were information technology and healthcare sectors that underperformed.

Their respective indices could only manage a modest gain of 1.34 per cent to 6.8 per cent during this period on the BSE.

Looking forward, ICICI Securities prefers investment rate, discretionary consumption, and improving credit growth.

Among individual stocks, it remains bullish on Larsen & Toubro (L&T), NTPC, Coal India, UltraTech Cement, JK Cement, Tata Communication, Greenpanel, Indraprastha Gas, Oil India, GAIL, Brigade Enterprise, Phoenix Mills, Tata Motors, Ashok Leyland, Dabur India, Jyothy Labs, Sapphire Foods, Metro Brands, Go Colors, SBI, IndusInd, SBI Life, SBI Card, and Angel One.

“We maintain our ‘overweight’ stance on BFSI, IT, consumer, telecom, and auto and ‘underweight’/’neutral’ stance on energy, metals, and healthcare,” said analysts at Motilal Oswal Financial Services.

Individually, the brokerage is positive on Reliance Industries, Infosys, HUL, ICICI Bank, Bharti Airtel, ITC, Maruti Suzuki, Titan Company, Hindalco, and Apollo Hospitals in the large-cap space.

Among mid-, small-caps, it prefers Macrotech Developers, Jubilant Foodworks, Clean Science, M&M Financial, VRL Logistics, and Lemon Tree Hotel.