Public sector banks, information technology companies, cement makers, and consumption plays are among other picks.
Despite unprecedented levels of uncertainty in Samvat 2077, investors have little to complain about on the returns front.
The BSE Sensex delivered returns of 38 per cent in this period, while the Nifty registered a return of over 40 per cent.
As is the case in bull markets, companies in the small- and mid-capitalisation basket outperformed the benchmarks, with returns almost twice those of frontliners.
What dominated the returns charts over the past year were realty, metal, and public sector undertaking (PSU) bank indices which doubled shareholder value.
Brokerages believe some of these themes - such as realty and banks - will continue into Samvat 2078.
Say analysts at Motilal Oswal Research, “We believe that real estate is on the cusp of an upcycle with several macro factors supporting low interest rates, benign prices, and rising affordability, coupled with low home ownership in India.”
In addition to direct realty plays, brokerages believe home improvement companies across sectors, such as cement, pipes, tiles, consumer electricals, paints, and plywood, will benefit from higher consumer spends.
While defensives (pharmaceutical, fast-moving consumer spends, and private banks) underperformed the market in Samvat 2077, some of the themes could do well in the future.
Kotak Research believes banks could be in focus, led by demand revival in the retail sector, such as housing, automobile, and unsecured loans.
The pharmaceutical sector also looks promising, with the speedy introduction of generic drugs, rural health programmes, life-saving drugs, preventive vaccines, and US Food and Drug Administration approvals, they add.
The July-September quarter results indicate that consumption demand is now close to pre-pandemic levels.
This should help companies in the multiplex, quick service restaurant, amusement park, automobile, and aviation sectors.
The rise in consumption is also expected to help in the revival of the capital expenditure cycle which, coupled with the government’s thrust on the infrastructure sector, will aid companies in the construction/infrastructure and capital goods space.
There are multiple positives which should sustain the earnings growth of Corporate India.
While key macroeconomic indicators are showing a positive trend and should help sustain demand and revenue growth, deleveraging of the corporate balance sheet and gradually improving asset quality of banks could sustain earnings growth.
Brokerages expect the Nifty earnings growth to be upwards of mid-teens in 2021-22.
But the year is not without risks.
Reliance Securities believes that the key risks for global equities would be a sharp rise in bond yields in the US, the likelihood of reversal of the US Federal Reserve’s soft monetary policies, and elevated energy prices.
This, together with high valuations at 22x the 2022-23 earnings for the Nifty, could result in periodic corrections.
Says an analyst at Kotak Research, “The rich valuations of the Indian market and of most sectors after the sharp rerating in the multiples of most stocks from their pre-pandemic levels raise the prospects of a pull-back in the market and/or modest returns for a 'longish' period of time.”
In this context, brokerages point out that investors must be selective in their stock picks, especially in the mid- capitalisation space, given that they tend to fall more sharply than their larger peers when selling pressures intensify.
While brokerages are bullish on multiple themes, there are two stocks which find mention in the top Diwali picks of most brokerages: Infosys and Larsen and Toubro (L&T).
While L&T’s value doubled over the past year, Infosys gained 60 per cent during this period.
PSU banks, information technology companies, cement makers, and consumption plays stand out as clear favourites among the picks for Samvat 2078.
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