So Which Are The Performing Sectors?

This year has seen huge volatility in the stock markets. The year began with bulls which sent the markets to nearly 18,500 or up by 19 per cent by February but with the issues like GAAR, huge rupee depreciation, persistent high inflation with status quo on lending rates and policy paralysis, the Sensex came off those highs and by June 2012 it touched the 2011 level. The markets in the last two months have shown two small rallies with some strength but the fundamentals have not changed. As the country got its new president, the government had said that it would introduce some reforms in the country. The discussion on rate cuts has acquired momentum but there seems no respite by the RBI as maintains its stand on inflation being beyond the comfort level. 

In the last one year, the situation in many of the sectors has worsened. For example, in the telecom sector the proposed auction for the 2G licenses has been postponed. The power, mining and metal sectors have been hit by the CAG report on coal block allocation while the same thing has also impacted the order books of the capital goods companies. The IPO market has also remained very silent in the year with only one big ticket IPO of MCX while many others were cancelled or postponed due to the lack of investors’ participation. 

Outperformers

All these things have been reflected in the performance of the sectors on the bourses. The benchmark Sensex is up by 15 per cent on an YTD basis. As the economic data suggests, industrial growth has stalled, investors have taken the shelter of defensive FMCG and pharma (HC) sectors which have rallied by over 30 per cent each on an YTD basis. We believe that these sectors still have some steam left in the remainder of the year and investors will remain bullish on both. The banking sector has also outperformed the Sensex with gains of 27 per cent on an YTD basis. As the inflation will ease, the RBI will go ahead with at least a CRR cut which will keep the Bankex on the investors’ buying list. The consumer durables (CD) sector is also on the investors’ list, it being consumption-driven. With the festival season in sight, the sector may see further highs. The mid-cap and small-cap indices are also up by 18 per cent on a YoY basis, thereby beating the Sensex. 

Underperformers

Obviously, when interest rates are high, the housing sector is the first one to suffer. The realty sector in the last one year has been up by just 13 per cent due to the bearish stance of the investors. Oil & gas is also another sector underperforming the Sensex. RIL, the biggest company in India, has seen its gas production declining from the KG-D6 basin. The PSU index is also down as the companies in the index (BHEL, ONGC, Coal India, NTPC, SBI, etc) have largely underperformed in relation to the Sensex. The IT and Teck stocks have also tumbled as Infosys has been witnessing competitive pressure and also the impact of a global slowdown. 

The auto index on an YTD basis has given 17 per cent returns which are mostly in line with the benchmark index. The index is under pressure as the recent august sales numbers are not encouraging. The festive season is the next trigger for the auto sector. The capital goods index is seen struggling as the capex plans of India Inc. have been halted. The faltering order books and lower IIP data speaks the story of capital goods in itself. The returns of the index have remained in line with the Sensex. 

As we move towards the end of the year, we remain upbeat on FMCG, pharma and Bankex. In other sectors, however, one needs to have ‘bottoms up’ approach. Nevertheless, we will keep updating our readers on the best stocks to invest through our website and our flagship magazine ‘Dalal Street Investment Journal’.