What are the best sector bets to play on economic recovery?
With the economy opening up at the state level, the government’s higher allocation to capital spending for fiscal year 22E should be helpful in stimulating economic growth in the coming days. Additionally, with expectations of a stronger-than-expected economic recovery in the country, economy-related sectors are expected to continue to be the focus of attention as global central banks continue their easy monetary policies, which will ensure abundant liquidity in world markets, including India.
In addition, the government’s attention seems to be refocusing on growth. His divestment program, the privatization of some public sector banks (PSBs) and emphasis on infrastructure are key milestones that indicate he expects the economy to grow faster. On the other hand, inflation is back and on the other hand, there is a visible pick-up in growth and demand. There is no doubt that continued government spending in the infrastructure sector will support faster economic growth, as it has a high multiplier effect due to the positive impact on other sectors.
Banks are seeing loan portfolios increasing in all major segments such as agriculture, retail, MSMEs and personal loans, except business loans and advances to large corporations.
Base metals such as steel have seen increased capacity utilization due to strong demand. Even discretionary consumption specifically geared towards rural areas and the automotive sector, primarily two-wheelers, are expected to experience significant growth. However, as the pandemic is not yet over, the IT and healthcare industries will continue to be on investor radar.
Going forward, sectors such as capital goods, building materials, consumer services, transportation, financial services, and metals and mining will continue to do well and reflation trade will prevail. Financials should benefit from the rotation towards economically sensitive sectors and are one of the main beneficiaries of the rise in bond yields. In addition, investors should consider the role of commodities, especially oil and gas in portfolios, both as beneficiaries of faster economic growth and as a hedge against the risk of persistent inflation. . Some of these sectors should also see the most lucrative upgrades, which makes them good bets in a portfolio.
With steadily increasing demand, the reopening of economies and the acceleration of the vaccination campaign, India’s economy is expected to continue to experience a sold recovery. Without a doubt, the ease of doing business, the creation of infrastructure and positive tax policies will help India grow into a $ 5,000 billion economy by 2024-25. So, this might be a good time to invest in stocks from these booming sectors. However, one should do due diligence on the fundamentals of these stocks before investing.
(DK Aggarwal is the CMD of SMC Investment and Advisors)