Exit finance, PSU and enter FMCG and IT sectors

As benchmark indices Nifty and Sensex witnessed a massive sell-off, falling almost six per cent after early voting gains, Sushil Kedia noted that the banking index appears to have hit a long-term high. An experienced investor believes that Nifty is likely to hover in the 21,000-23,000 range for some time.

Kedia’s strategic approach during the election period included safer bets on fast-moving consumer goods (FMCG) and small IT companies, sectors known for earnings visibility and stability.

According to Kedia, these sectors will continue to benefit as funds rebalance their portfolios. The investor stressed that the era of financial and public sector undertakings (PSUs) may be over, suggesting that defense and railway stocks have also peaked.

This indicates a shift in market preferences towards sectors with more predictable profits and growth potential.

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“Sale”

Referring to the market’s behavior after sharp sell-offs, Kedia explained that significant one-day declines often eliminate short-term weak bulls, setting the stage for a rally.

Historical patterns show that markets tend to stabilize and return to fundamentals, such as broader economic history and corporate performance, after election-related volatility subsides. He cautioned against taking a broad, bearish stance, suggesting instead that investors focus on sector changes.

Kedia drew attention to the increase in bond yields, explaining it with the expectation of the formation of a coalition government, which may cause inflationary pressure. He expressed a bearish view on PSU banks and some telecom companies like Bharti, expecting significant declines.

On the other hand, it identified potential long opportunities in sectors such as FMCG and IT that provide a safer haven amid market turmoil.

Sector opportunities and changes

Recalling the pre-election period, Kedia told Moneycontrol that he had already predicted sector rotation. He highlighted the poor performance of IT and FMCG companies relative to their potential, which makes them attractive even if a strong government mandate materializes. Given the fragile mandate, these sectors become even more attractive as safe havens.

Kedia mentioned the oversaturation of certain stocks, including defense and PSU companies, which saw massive buying to the extent that “even Paanwala bought them.” With little room for further gains, he recommended exiting these positions in the event of any market rally.

Emerging opportunities

Looking ahead, Kedia sees potential in the mid-cap media and pharma sectors. He remains wary of large-cap pharmaceutical companies like Dr. Reddy’s and Sun Pharma, recommending short positions on any upside.

However, it continues to support mid-cap pharma companies on their growth prospects over the next six months.

Read also | Markets may experience sharp gains after the final vote count, but the focus is on policy continuity: A Bala

In the real estate and cement sectors, Kedia suggests that new opportunities may emerge once the market stabilizes. It highlights the importance of observing the way the coalition government allocates ministries and governs, which will have an impact on sector performance.

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