Saurabh Mukherjea’s top sectoral picks for the new calendar year

The relationship between corporate earnings growth and GDP numbers has been broken in the domestic economy, if one were to go by the data available for the past six quarters. This means, the frontline companies can see earnings growth only when they are able to appropriate the benefits of economic growth, says Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital.

In an interview with Economic Times, Mukherjea says the domestic economy is in a unique situation, and what is good for the economy may not necessarily be good for the stock market.

Meanwhile, as companies become more competitive, consumers begin getting a better deal for products across all sectors. As such, the next two years are going to be largely about select stock picking in key sectors, Mukherjea said, adding: “To make mid-teen returns, one has to be necessarily in mid-cap and small-cap companies.”

ETMarkets sums up Mukherjea's top sectoral and thematic bets for the new calendar year.

TOP SECTORAL BETS

Auto & auto ancillaries: This space will become bigger. Listed auto companies and also for the foreign markets, India will become an export hub. This is reasonably a straight-forward sector and this is where you can see much more Sensex participation.

FMCG: Regional players in the FMCG space will become a big theme to play, mainly through IPOs. Players like Ghadi Detergent, Anmol Biscuts and such others will become zonal leaders and large enough to be a substantial listed player.

Financials: Life insurance will be an addition to the financial services landscape in the listing space.

TOP THEMATIC BETS

Urban consumption: This will work as a theme, because consumers are getting a fair deal. The Seventh Pay Commission reward will work as a stimulus for this space. Trent, TVS Motor, Titan are some of the names we have in our list.
Export-oriented sectors: The export sector will do well, as the rupee is continuously sinking. If you assume that China is going to devalue its currency, then the rupee is going to decline further. The cost of capital will continue to fall in India if all the competitive dynamics play out. Export plays look hot. Export-centric companies that have got strong franchise will do well.

Road construction: Road building is where all the action is going to be. This is a sector that the government has clearly prioritised. So stocks like Ashoka Buildcon, Sadbhav Engineering should do well.

WHAT TO AVOID

Public sector banks: More pain is in store for them as fresh NPAs are likely to come up in real estate and metals sectors. The banking sector has already 13 per cent of its assets under the stressed category. What you have in India is actually a balance sheet recession, where the capex sectors have neither interest nor ability to generate capex, and the banking sector cannot finance the capex.