Sectors on which HDFC Securities is betting on in the New Year

Sectors on which HDFC Securities is betting on in the New Year

NEW DELHI: As we enter into the New Year, and assuming you would have benefitted from the ongoing rally or even if you have not, many of you would be interested in reshuffling your portfolio to make the best out of 2021.

In order to do that, it is important to get the sectors and stocks right, or you may be in for a rude shock. Last year, some sectors like IT and pharma were in the limelight.

So how will different sectors perform this year and which one can you avoid? Analysts at HDFC Securities have some suggestions. Besides, its top 10 picks for the year are: Bandhan Bank, Birla Corporation, GAIL, HPCL, HUL, Infosys, Nippon AMC, ONGC, SBI and Sun Pharma.

Financials: Financials have the largest weightages in most major indices and a rally in them could mean good gains for the overall market. In the last year, the BSE Bankex index ended down 2.14 per cent.

“We expect financials to benefit from growth pick-up in 2021. We expect bank provisions to come down after a long credit down-cycle of the past four years and PPOP growth to pick up due to improving credit growth,” said HDFC Securities.

The focus should be on non-lending financials such as exchanges, payments, AMCs and brokers as they are likely to continue to see fast-paced changes, led by higher capital markets activity both at the retail and corporate level.

Real Estate: This sector is expected to make a comeback after years of underperformance, say analysts. Residential real estate and overall capital formation have troughed out in 2020 after a prolonged down-cycle and should improve with the help of lower interest rates.

Industrials: Infrastructure sector is expected to do well as government spending remains strong despite fiscal constraints. Private sector balance sheets are in good shape now and have room to leverage for growth.

“Valuations are attractive, making risk-reward attractive if we are at the start of the capex cycle. Government capex would be the first one to kickstart and the private sector capex could come after 1-2 years once capital utilisations goes up and demand picks up,” said HDFC Securities.

Pharma: The biggest outperformers of 2020 are likely to continue their stellar show in 2021. Pharma seems to be on a strong wicket with domestic demand being steady, especially in chronic segments. The US generics market has also seen its worst and is gradually improving from pricing and margin erosion seen in the past 2-3 years.

IT: The brokerage expects globally-oriented sectors such as IT to continue doing well. IT spends continue to be strong, led by companies increasing digital spends in the context of the pandemic. Indian IT companies are well-placed to benefit from this multi-year trend.

Consumer Durables: Consumption has made a strong comeback in 2HCY20, post the unlock, and rural demand remains healthy. Urban consumption demand, especially in home improvement segments, seems sustainable as consumers look to purchase durables and appliances. Given low penetration levels in multiple categories, these offer a long-term growth runway for strong brands with a deep distribution.

FMCG: Demand remains steady in this sector and continues to be led by higher rural penetration. Rising farmers’ income could be a structural tailwind for the sector.

PSUs: Another underperforming block which continued to disappoint investors in 2020. But, things may change in this year as the government is planning to sell stakes. Moreover, low valuations are also in their favour.

“We believe that select PSUs with strong competitive positioning in their respective sectors such as Power, Oil & Gas, Utilities, Coal and large Banks look attractive, offering deep value. Most of these stocks also offer high dividend yields making them attractive in the current low-interest rate environment, the broker said.

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