If election result today is on expected lines, these sectors should lead the rally

Investors on Dalal Street should keep their shopping list ready, as the bulls are looking charged on the back of a likely end to political uncertainty by the end of Thursday.

Already, equity benchmarks Sensex and Nifty are hovering near record highs after the exit polls projected a clear mandate for the Narendra Modi-led NDA in the Lok Sabha elections.

The 30-share Sensex hit a new high of 39,571 on May 21, while the 50-share Nifty scaled a lifetime high of 11,883.


Market experts see more legs to this rally with over 10 per cent upside in next 10 months with bullish views on sectors like private banks, textiles, chemicals, select NBFCs, capital goods, construction and infrastructure.

Rusmik Oza, Head of Fundamental Research at Kotak Securities, says Nifty can hit the 13,000 mark by the end of FY20, while Pankaj Pandey, Head of Research at ICICIdirect, sees Sensex at 44,000.

Going with market experts, financialisation and formalisation of the economy have created ample opportunities for private lenders with retail focus. They will be big beneficiaries of the improving credit culture and credit opportunities in the economy. One can also look at select corporate banks with an extensive network, as they have started reporting better profitability on the back of a reduction in provisioning.

Of late, better asset quality and a 100 basis points dip in credit cost have helped India’s largest lender State Bank of India to report a net income of Rs 838 crore for March quarter against a net loss of Rs 7,718 crore reported for the year ago period. The lender also gave a guidance for sunnier days ahead.

“We prefer select financials, NBFCs, corporate banks and insurance – specifically life insurance as a sector. We also prefer capital goods, specifically the engineering space. We are selectively confident on commercial vehicles, and we like some of the two-wheeler companies,” said Deven Choksey, group managing director, KR Choksey Investment Managers.


Brokerage Axis Securities is bullish on private banks, IT, textile, pharma and chemical space.

“Due to higher demand for digital automation across geographies, the IT sector is poised for growth in the long run. As global economies are doing good, export-related segments like textiles and chemicals also have ample scope to grow. In textiles and chemicals, India scores better due to lower labour cost, talented workforce and stringent intellectual property laws. If serious sanctions are imposed on China going forward, India would have a competitive advantage in these industries,” the brokerage said.

The capital goods sector has been one of the laggards for a few years now given the lack of appetite among private players. Market experts say private capex should revive soon as utilisation rate has improved (currently standing around 75 per cent). Going forward, a good monsoon can drive consumption-led demand, which would push capacity utilisation beyond the 80 per cent mark, calling for enhanced private capital spends.

The BSE Capital Goods index has underperformed Sensex with over 2 per cent fall since January 2018. The Sensex gained over 16 per cent during the same period.

Pankaj Pandey of ICICIdirect sees corporate earnings to stage an impressive growth of 21.5 per cent CAGR over FY19-21E against single-digit growth in last four years (FY15-19E).

He is also bullish on sectors like banks on peaking out of the NPA cycle, coupled with asset resolution and relative robust earnings going forward. He is positive on infrastructure and capital goods sectors on account of strong execution and order inflows coupled with benign interest rates in the near term.

Gaurav Dua, Head of Strategy and Investments at Sharekhan, projected an 8-10 per cent appreciation in Sensex and Nifty from current levels (on May 20). He advised investors to look for stocks in sectors like industrials, constructions, private sector banks, specialty chemicals, agri inputs as well as IT services.