Indian bank, insurance and infrastructure stocks should outperform as the nation's economy struggles with weak consumption and its slowest pace of growth in six years, says IIFL Securities.
"Market cycles can change faster than actual happenings on the ground," Arindam Chanda, Chief Executive Officer at IIFL Securities, said in an interview at his Mumbai office. "The falling cost of borrowing and a revival in animal spirits will boost the industry spending cycle first and consumption will revive later," he said.
India's key equity indexes have dropped more than 8 per cent from their peaks in June after the introduction of a tax on higher incomes and a lack of stimulus in the government's July budget damped investor sentiment. While the administration recently laid out a spate of measures aimed at reviving the economy, results are likely to take time to materialize.
Foreign investors have pulled more than $400 million from local equities so far in September, headed for a third-straight month of withdrawals, according to data compiled by Bloomberg.
IIFL advises investors to buy shares of the so-called corporate banks -- lenders that have a significant portion of their loans to companies versus individual customers -- as it sees a peak in the soured-debt cycle. It also prefers non-state insurance companies on the huge market potential to serve the under-insured in the world's second-most populous nation.
Here are some more comments from Chanda:
Economic growth is the main worry and consumption needs to pick up. The US-China trade dispute and the slowing pace of global economies are other factors that may weigh on investor sentiment.
The slowdown in consumer spending will bottom out in this or the next quarter, but growth is unlikely to return to peak levels for about two years given the challenges.
Expects earnings for Nifty 50 companies to rise by an average of 10 per cent in the fiscal year ending March 31 and as much as 18 per cent in the next year.