If the situation develops as expected, defensive sectors are most likely to outperform in the short term. However, cyclicals would offer higher returns in the recovery phase that typically lasts three-six months, according to 15-year historical data based on 17 episodes of steep market corrections.
Data showed the FMCG index has fallen 11 per cent in the past 17 corrections compared with a 17.7 per cent fall in the Nifty 50. Pharma (down 11.6 per cent on average) and IT (down 12.9 per cent) also outperformed the index in the comparable periods. This was against a 20-22 per cent average slide for economy-facing sectors such as banks, metals, and capital goods during correction phases.
The market has usually recovered from such sharp corrections within three-six months, with economy-facing sectors leading the rebound.
Antique Stock Broking said a falling growth expectation and a rise in inflation have historically been two key reasons for the market to correct. The outlook for both factors has started deteriorating in recent times, it said. “Based on our near-term outlook, we tactically recommend a defensive approach, along with higher cash levels for the short term. We also believe that in the medium-term, the portfolio should be titled towards investment recovery plays, along technology space. Our March 2022, Nifty-50 target remains unchanged at 16,800 – 17,368 based on FY23 EPS range of Rs 800-827,” Antique said.
Nomura India said it has retained its overweight call on IT, healthcare, infra, and select financials. But given the recent outperformance in the IT sector, it has moved some weight from IT to infra and consumer. It remained underweight on autos, consumer, and cement.
Motilal Oswal Securities said it was overweight on banking and financials, IT, metals, cement and capital goods. This brokerage was neutral on consumer, auto and healthcare; and underweight on telecom, energy and utilities.
Bofa Securities remained overweight on industrials, given its expectation of multi-year capex upcycle and financials on likely peaking credit costs and a pick-up in credit growth. It raised its weight towards defensives in staples (from neutral), utilities and IT (overweight earlier) but maintained underweight on discretionary.
