Where to buy afresh in a topped up market? | Economic Times

Besides a technical bounce, I would not really expect big things to happen in auto. There are pockets like banks, capital goods, tea and sugar, infra and real estate and the associated or ancillary sector, which can do well even from current levels, says Pankaj Pandey, Head Research, ICICIdirect.com. Are you telling your clients to switch from IT to auto or should they stay invested in both? Given the overall concerns, especially on the energy side, we are seeing a sector rotation which has been going on for quite some time. Metal as a pack is underperforming for the past three months given the substantial outperformance before that. Similarly, pharma is not doing anything at this point in time. In the case of IT, despite good numbers, the price appreciation has been quite healthy and this is where most of our target prices for any typical tier one, tier two IT companies have been reached. Our sense is that the market is richly valued and one needs to look at sectors where the near term and the longer term outlook is quite fine. From that perspective, banks make a good case because banks’ asset quality concerns are over and as credit growth picks up, banks will pick up steam. Same is the case with capital goods. We are sensing the beginning of private sector capex seeping in and that should benefit. It is the same case with the infrastructure players. Then there are recovery plays like hotels or multiplexes. For all these companies, the best is yet to come. In terms of auto, there are still a lot of challenges. There is the chip shortage, revenue degrowth as well as volume degrowth. On top of it, raw material prices, especially steel prices are yet not easing substantially to warrant a rerating. The other challenge is probably that the capacity or inventory building is also up to the mark for the festive season and which is where our challenges are. The festive season may not be very good for the auto sector. In two-wheelers, we have a more competitive product and companies are yet to do the requisite capacity building to match that kind of intensity. Beside the near term challenges, there are also structural challenges in auto. So besides a technical bounce, I would not really expect big things to happen in auto. There are pockets like banks, capital goods, tea and sugar, infra and real estate and the associated or ancillary sector, which can do well even from current levels. Where are you finding an opportunity in this market to buy afresh? We like the entire set of tier one banks. Then in the real estate and the ancillary segment, besides the real estate stocks like Oberoi, Mahindra Lifespace, we also like housing finance companies like HDFC. Besides that, we like FMEG (Fast Moving Electrical Goods) companies because historically whenever real estate performs well, there is a secular double digit growth rate in FMEG segments and housing finance companies. Infra is another sector which we like and so we like the entire road-based companies like PNG Infra. Besides that, we believe private sector capex will intensify in the capital goods sector and that will have benefit across the value chains. Here we like Siemens which is expected to benefit from short cycle orders and a building company like Ador Welding. We also like abrasive companies and bearing companies like Timken and SKF. These pockets have not seen price appreciation and the outlook is going to get better over a period of time.