Friday, April 7, 2017

Sensex is near its lifetime high - which sectors will lead the next leg of the rally?

What a difference a year can make! Sensex was recovering after a year long down trend when the previous post was written. Since then, the index has taken investors on a a topsy-turvy ride - 4 months of up trend followed by 4 months of down trend and then another 4 months of up trend. 

Some sectors that were doing well a year back are not doing so well now. A few sectors that were in complete doldrums have made excellent recoveries. A couple of sectors have remained unaffected by Sensex gyrations.

A smart move will be to stay with the sectors that have not been affected much and look for opportunities in sectors that appear to be on the road to recovery. Partial profit booking can be done in sectors where stock prices have run ahead of fundamentals. 

BSE Auto Index

BSE Auto touched a new high in Sep '16 and corrected with the broader market. The subsequent recovery has not kept pace with Sensex - thanks to strong headwinds. First, demonetisation affected sales. Then, Supreme Court strictures on sale of BS III vehicles dealt a body blow. It may take a couple of quarters to recover.

BSE Bankex

Fortunes of BSE Bankex got a sharp boost from demonetisation - with huge inflows of low cost cash. Loan growth remains muted and NPA problems of PSU banks are far from over. Strong action against habitual loan defaulters is a plus; farm loan waivers by state governments is a minus. Negative divergences on technical indicators hint at some correction or consolidation.

BSE Capital Goods Index

BSE Capital Goods has made an excellent recovery - though still 1000 points short of its Mar '15 peak. Technical indicators are looking quite overbought and are suggesting a correction.

BSE Consumer Durables Index

BSE Consumer Durables remains in a bull market after recovering from a sharp demonetisation-induced correction in Nov '16. The last leg of the rally has been too sharp. Overbought technical indicators may trigger a correction.


BSE FMCG corrected with Sensex from Sep '16 to Dec '16, and has since moved up to touch new highs.  The index is correcting after forming what looks like a 'double top' reversal pattern. Any dips can be used to buy into this perennial favourite sector of savvy investors.

BSE Healthcare Index

BSE Healthcare is feeling the adverse effects of a double whammy - US FDA strictures against pharma exporters, and DPCA keeping a lid on domestic pharma prices. The days of windfall gains from reverse-engineered generic drugs are over. Those who spend the time, effort and money on R&D and marketing will emerge victorious. 

BSE IT Index

BSE IT is reaping what it had sowed - an over-dependence on 'body-shopping'. New US visa rules may finally put an end to easy money. A lot of small and medium sized IT companies will disappear. The larger ones will survive only if they move up the value chain by strengthening their consultancy activities. 

BSE Metal Index

BSE Metal has had a nice bull ran - thanks to 'anti-dumping' actions against China in US and Europe. An expected pick up in infrastructure projects in India will sustain growth. A consolidation within a 'rectangle' pattern for the past three months may lead to an upward breakout.

BSE Oil & Gas Index

BSE Oil & Gas has done very well - mainly due to low international oil prices. Negative divergences on technical indicators can initiate some correction or consolidation. The sector should continue to do well.

BSE Power Index

BSE Power has run a bit ahead of its fundamentals, and looks ripe for a correction. The government's emphasis on renewable energy may put the future of coal-based power plants in jeopardy.

BSE Realty Index

BSE Realty index may appear to have reversed its fortunes - but remains 500 points short of its Jun '14 peak. Technical indicators are looking overbought. If you are holding stocks from this sector, booking profits and making a down payment on an apartment may be a good idea.

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