After budget 2018, it is the first time when we are closing a monthly session on a positive note. From the levels of 10100-10200, nifty has seen recovery/buying of more than 400 points. And now, nifty is very close to end this April session around 10600. 4 days are still left in the expiry, but now it is very positive that first month of FY19 is going to close with a good return.
If we take a look on the overall market trend, then we would find that one of the most favourite sector pick of April 2018 was IT sector. Almost all the IT stocks have seen a great buying in last few months. HCL TECH, Tech Mahindra etc all have made a new 52week high. Also, TCS now has again regained the most valuable company tag of the country with a market capital of more than Rs 6.5 lakh crore. Some of credit for such a impressive buying in IT sector really goes to TCS. After reporting a good Q4 number last week, stock climbed more than 10 percent in last 2 trading sessions.
However, in this recovering market mostly supporting by IT sector, there has been an another pocket of stock where we saw a improved performance. It was the pocket of expensive stocks where return percentage was in good amount. Stocks like TITAN, Avenue Supermart ( DMart), Indiabulls ventures etc all gave wonderful returns despite of rich/expensive valuations. Stocks like Jubiland Foodworks, FMCG stocks like HUL, and Auto stocks like M&M, Ashok Leyland also helped in improving market sentiment after March end and all of them also made a new 52 week high.
So overall, it wouldn’t be wrong to say that after Budget 2018, mostly those High rated corporates/businesses have seen a good buying interest from investors having impressive past records. In other words, we can also say that those having good past record and are related to consumption/IT theme Gained the whole market attention.
But now the question is whether IT and Consumption theme will continue to lead the market for more months or will loose the demand from investors soon?
In consumption theme/FMCG related stocks, most of the stocks are now trading at very rich valuations. Few have already joined the list of expensive. But still, there are few stocks in this theme having attractive valuations.
Election year ( 2019 ) is on the way and 2018 is also filled with full of elections of different states. And because, many market analysts, fund managers believe FMCG as a best place to safely park the money of public, chances of having more buying in Food related stocks is higher. But because of valuations is somewhere higher in this sector, probability of sharp buying is very low. However, I think for the next one year, we can see a good consistent buying in this year. But don’t expect any sharp rally in FMCG related stocks.
Let’s come back to stars of the March month i.e IT stocks. Year by Year, investments in Digitality is rapidly increasing and because there is still a large space remaining to cover in Indian economy, I think we will continue this trend over 3-4 years. However, from such investments in Digitality, who will get the prime benefit? Definetly, IT sector will be the most advantages receivable from such investments because it is giving a new way for IT companies to expand their businesses more effectively in India.
However, the basic reason behind why IT sector is booming and Food related stocks not is that there is a large gap between the valuations of both the sector. Whereas, most of the FMCG related stocks are trading above 35 PE level, IT stocks are still available at around 20 PE. Also, before July 2017, most of the IT stocks were in a consolidation period which i think has been over now.
However, because the valuations of IT stocks are also not cheap, it is not possible to see multibagger returns in IT in next few quarters. But yes, I think from a long-term perspective like 2-4 years, it could be a good choice to hold IT stocks in your portfolio. You can read more about my long-term view on IT here Is it good idea to hold IT stocks?
For the short-term, I think IT sector still has some more space to rally in this sideways market. But because there are many other sectors like PSU Banking, Infrastructure etc available at a very good valuation or price ( and have great stock specific opportunities ) for those having great amount of funds like Financial institutions, fund managers, opportunity in particularly IT sector don’t seem too much large.
So, if you are going to invest in IT stocks at current levels for long-term, then you can definitely go ahead. But if you have a short-term view like 2-5 months, then you should be very carefull because IT stocks have already seen 20-50 percent rise in last few months.
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