Where do you think the market will start to be attractive? Are pockets looking interesting selectively?
In the last few months, some segments have underperformed and with the fear of the next wave of pandemic coming back globally, it is time to relook at those stocks or sectors. These include the pharma and the healthcare space which had run up significantly and were underperforming for obvious reasons; the results were not that good, there were pricing pressures in the US, margin came down and so they were underperforming but now.
We are clearly seeing the flavour coming back. Another defensive sector that I may look at in this environment would be IT. For three to four quarters, they have consistently reported strong numbers. The deal wins have been pretty good, the outlook remains pretty strong. They have strong order books and with the pandemic and work from home environment, the digital spend on technology would remain strong going forward. That is a sector where we have not seen very high and uncomfortable valuations that can be seen in some pockets in the market.
How would you look at attractive names? The high beta stocks have fallen more but the India real estate market or the steel domestic market are not likely to stop. Is there some buying opportunity in these high beta names if there is another 3-4% correction in any of the large sector leader stocks?
These are businesses which would last for a long period and these are knee jerk reactions to the global news flows. No one was expecting the kind of pandemic spread that has happened so fast in Europe. The bigger concern or risk was the hike in interest rate from a lot of global central banks which could impact some of these high beta names. Now one can find some comfort if the pandemic continues. The central banks across the world will need to hold on to the rate hikes as we were expecting that even the US Fed could prepone the rate hikes.
So yes, some of these would do well but you will have to wait out for the volatility to end. If one takes Friday’s fall of around 3%, the index is down about 8-9% from its peak so we have not fallen a lot from the peak and there is still a lot of profits in some of these high beta names that people are sitting on.
So there could be some more bout of profit booking and selling in these stocks but ideally, we would look at some of the capex themes. For example, the cement sector looks well. One can look at UltraTech in the largecap space. Real estate being a very high beta sector, we can wait it out for some time. Metals have been seeing some kind of pressure, global economic growth could get impacted if the pandemic continues to spread. Again we need to wait out for some time but the outlook at least on some of the metal names are positive. If it corrects another 5-10%, one can selectively look at some metal names like JSW Steel or
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