Banks and Financials: Most analysts expect financials to benefit from growth pick-up in 2021. HDFC Securities sees bank provisions coming down after a long credit down-cycle of the past four years and PPOP growth to pick up due to improving credit growth. It also expects non-lending financials to continue to see fast-paced changes, led by higher capital markets activity both at the retail and corporate level. Valuations leave some room for a rerating in banks and select financials, it added.
Auto: CY20 did not go as per plan for most and the auto sector too was impacted as mobility needs got constrained in H1 due to lockdowns. However, H2 was a story of pent-up demand release and growing industry optimism. Moving into CY21, ICICI Securities estimates strong double-digit industry growth while assuming a continuation of more of the same trend. Bajaj Auto, TVS Motors, Balkrishna Industries, Motherson Sumi are its top picks for the sector.
IT: IT spends continues to be strong, led by companies increasing digital spending in the context of the pandemic, note analysts, adding that Indian IT companies are well-placed to benefit from this multi-year trend. Strong capital efficiency and cost controls have led to earnings surprises that could continue. However, ICICI Securities see a high likelihood of the IT index underperforming after maintaining 3 years of overweight stance and prefers stocks with scope for idiosyncratic surprises and valuation comfort.
Pharma: Pharma also seems to be on a strong wicket with domestic demand being steady and the US generics market gradually improving from pricing and margin erosion seen in the past 2-3 years. HDFC Securities sees bottoms-up investment opportunities in these sectors despite a sharp pick-up in 2020. Select mid-cap business models look scalable and are profitable investment opportunities, it added. Meanwhile, ICICI Securities recommends 'buy' on companies with strong India business and pipeline of complex generics in the US. Cipla, Alkem and Abbott India are its top picks.
Metal: Outlook for metal stocks under coverage remains cautious to negative for CY21, said ICICI Securities. It has rated all-metal stocks at hold/reduce/sell. ICICI downgrades Tata Steel and Hindalco to hold from add and JSPL to reduce from add. The current margins, valuations clearly tell a story of caution. Chinese demand stimuli, artificial RM shortages through restrictions on scrap imports sustain the rally for now, it explained. Deleveraging, as a theme, is important but overhyped given such cyclically high margins, valuations, it further noted.
FMCG/Consumption: Consumption has made a strong comeback in the second half of 2020 post the unlock, and rural demand remains healthy. As per HDFC Securities, demand remains steady and continues to be led by higher rural penetration and rising farmers’ income could be a structural tailwind for the sector. Valuations are rich in most segments, but it sees select ideas where long-term growth rates could surprise positively. Akzo, Bajaj Cons., Dabur, Godrej Cons., HUL, ITC, Jyothy Lab are ICICI Securities' top picks in this space.
Real Estate/Infra: Analysts expect this sector to make a comeback in 2021, given growth pick-up and Make in India thrust. Residential real estate and overall capital formation have troughed out in 2020 after a prolonged down-cycle and should improve with the help of lower interest rates, said HDFC Securities in a note. It is also expected to do well as government spending on roads etc. remains strong despite fiscal constraints. Meanwhile, DLF, Brigade Enterprises, Phoenix Mills and the Embassy and Mindspace REITs are ICICI Securities' top picks in the sector.
Cement: ICICI Securities maintains a positive stance on the space for CY21 as it expects consensus earnings upgrade to continue. Industry average EBITDA/te grew 25 percent YoY in FY20, which further rose 20 percent YoY to over Rs 1,250/te in H1FY21. With improving volumes/prices, investors are likely to get more convinced about the sustainability of this profitability, it added. Shree Cement and UltraTech cement are its top picks.