3 Sectors Where You Can Find Dark Horses as Markets Turn Choppy
2020 has been difficult for everyone around the world. Suddenly there is a lot to worry about whether it is the suspense around US presidential outcomes or the surge in Covid-19 in terms of coronavirus.
The good news is interest rates continue to be low for three years running in the US. The US election uncertainty has been there for a while. There is a second Covid-19 wave in Europe and a possible third wave in the US. All of this is a little scary.
But exports are where the challenge is going to be and secondly liquidity flows. Whenever this concern comes, there is a risk-off trade and that is why in markets like India where the growth potential is beginning to look up, the liquidity comes down because of the risk component.
When the mutual funds enter to buy, the recovery will be more broad-based. The focus has now shifted to the second-quarter GDP number. We expect a 10% negative GDP growth in this quarter.
The market has priced in the recovery to a certain extent. But for aligning valuations and earnings, one quarter should be enough. If the Diwali numbers surprise on the upside, that is one potential upside. The second one would be a good Kharif crop which typically comes out in the first two weeks of January. A very good harvest with Agri GDP going to double digits would mean that overall Indian GDP will turn positive. The market has factored in a Diwali bounce back in consumer durables and auto and the rural economies expect a record Kharif harvest yield.
In addition to tracking the growth numbers correctly, People have to take the risk of seeing the situation in international markets. At the current valuations, it is not the time to go out and buy. We are already holding all these positions. I would rather wait for some corrections to step in and buy with the incremental cash that we hold.
We expect financials to pick up because lending still has not happened, transmission has not happened fully. The financial system and good quality NBFCs are increasingly accessing cheap money from the banking system. The upside on the lending side on financial services is a good play. Consumer durables, auto, all are linked to borrowing. If you see consumer durables and auto demand picking up, automatically you are going to see the loan books pick up. That is a positive play.