Navigating the Second Half of 2024: Analysts Identify Key Investment Sectors and Pitfalls to Avoid

Despite significant volatility due to both domestic and global factors, Indian stock indices — Sensex and Nifty 50 — delivered impressive gains in the first half of 2024. Nifty 50 rose 10.5 per cent to a record high of 24,174, while Sensex rose 9.4 per cent to a peak of 79,671.58. These milestones underline the resilience and optimism in the market amid challenging conditions.

After strong returns in November and December last year, the Nifty 50 ended January on a flat note, down 0.03 per cent. It then delivered positive returns for the next 3 months from February to April, rising by 1-2 per cent each, on positive macro data, expectations of rate cuts and confidence of Modi’s victory in the Lok Sabha elections. May brought some election-related uncertainties, which led to a decline in the Nifty 50 by 0.33 per cent. However, the index rebounded sharply in June, rising by almost 7 per cent as the Modi-led NDA government formed a government for a third term and political clarity emerged.

Among sectors, the Nifty Realty index was the best performer, up over 41 per cent, followed by the Nifty PSE index and Nifty Auto, each up over 35 per cent. Meanwhile, Nifty Pharma, Nifty Consumption, Nifty Energy and Nifty Metals rose by 15-25 per cent each. Nifty Bank and Nifty Finance rose by over 8 per cent each, while Nifty IT added 4 per cent. Nifty FMCG was the only sector that remained unchanged but in the red in H1FY24.

Looking ahead, the domestic market is expected to continue its upward trend in the next six months, driven by moderating inflation, progress in the monsoon season and solid economic growth. Moreover, discussions on potential interest rate cuts are likely to shape market sentiment.

As we enter the second half of 2024, market analysts offer insights on which sectors are poised for growth and which ones investors should be wary of. With a range of opinions at their disposal, experts weigh their preferred investment strategies and sectors to watch. Let’s take a look at their recommendations.

Hemang Kapasi, head of equities at Sanctum Wealth, prefers the private banking and chemicals sectors, while suggesting avoiding capital goods, industrials and state-owned enterprises.

Given the relatively high valuations in most sectors and reasonable growth expectations, we believe it is prudent to make some allocations to sectors where earnings expectations are relatively lower and the likelihood of a turnaround is low, such as chemicals.

We will reduce some weights in sectors that have performed exceptionally well over the last few years, such as capital goods, industrials and public sector companies, although the outlook is good, it is a more crowded space now. We believe that in these sectors, a more equity-specific approach should be taken, rather than a top-down approach.

We have a counter-consensus allocation towards larger private sector banks. We are positive on the chemical sector as a space where capex has been made and a cyclical recovery has probably begun.

Given the electoral mandate, we believe that the government will address rural issues to some extent, which should prove beneficial for some consumer-related sectors.

Sonam Srivastava, founder and fund manager at Wright Research, prefers financials, automotive and consumer durables sectors in the second half of the year, but advises avoiding IT and infrastructure.

With a focus on overcoming potential headwinds in H2FY24, strategic allocation across sectors may be cautious. Sectors that are poised to benefit from the economic recovery may be prioritized. Banking and financial institutions may benefit from credit growth, while consumer discretionary sectors such as automotive, durables, and entertainment may see a boost in consumer spending. Pharmaceuticals, known for its relative resilience during periods of economic slowdown, may also provide stability.

Caution is advised when considering currently overvalued stocks in sectors such as information technology and infrastructure. These sectors, while having long-term potential, could be susceptible to corrections if interest rates continue to rise. Fast-moving consumer goods (FMCG) companies, given their significant product nature, could provide a defensive hedge against potential market volatility.

Diwakar Rana – Fund Manager, PMS Prudent Equity is bullish on the banking, non-banking financial companies, HFCs and infrastructure sectors, while recommending avoiding the chemicals and textiles sectors.

We still see a lot of potential and comfort in the valuation of the banking sector and NBFCs, which include microfinance and housing finance companies. Another area that we think could be a good investment is the infrastructure space. Industries like chemicals and textiles continue to face challenges and their growth shows no signs of improvement.

Ravi Singh – Senior Vice President, Retail Research, Religare Broking

For the next six months, investors should consider focusing on railways, defence, public sector units (PSUs) and IT. Caution is advised while investing in real estate sector.

Apurva Sheth, director, market outlook and research, SAMCO Securities, prefers private banks and fast-moving consumer goods (FMCG) sectors in the second half of the year.

Private banks and FMCG are two sectors where we are currently overweight. Private banks have underperformed significantly compared to their public sector counterparts. Private banks are currently trading at comfortable valuations, which provides a safety margin in case of a risk aversion event. FMCG stocks are likely to do well, whether you like it or not, but the coalition government will be forced to dish out populist measures to remain relevant among voters. We have already seen a number of populist measures from states that are going to hold elections soon. This trend will only gain momentum, leading to an improvement in volumes for FMCG and consumer stocks.

Sumit Jain, deputy CIO at ASK Investment Managers, favors manufacturing, defense, energy, infrastructure and consumer discretionary sectors.

We continue to like companies that are more dependent on the domestic market. We expect the government to continue to focus on infrastructure and building in India. Companies in manufacturing, defense, energy transformation, infrastructure and consumer discretionary that have a long growth path are preferred over companies that can be affected by global vagaries.

Tanvi Kanchan, UAE Business & Strategy Director, Anand Rathi Shares and Stock Brokers

Domestic cyclical growth remains our top-tier theme, spanning sectors such as energy, manufacturing, infrastructure, capital goods and select consumer discretionary.

In summary, the investment landscape for the rest of 2024 presents a mix of opportunities and cautions. Private banks, chemicals, and consumer durables are among the favored sectors, while capital goods, IT, and real estate require a more cautious approach. A balanced and strategic allocation that considers both domestic growth and potential global risks will be key for investors navigating the market in the coming months.

Disclaimer: The views and recommendations presented above are those of the individual analysts or brokerage firms and not Mint. We recommend that investors consult certified experts before making any investment decisions.