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Which sector will outperform in 2012? - Views on News from Equitymaster
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  • Jan 3, 2012

    Which sector will outperform in 2012?

    2011 has been done and dusted with. And it hasn't been a particularly good year for Indian equities. In fact, 2011 turned out to be the second worst year in the last 14 year history of the Indian stock markets. After all, it is not every year that an index loses nearly 1/4th of its value. Macro factors, both globally as well as domestically took a heavy toll on the performance of the indices, causing them to drop sharply in value.

    However, if the performance of the BSE-Sensex was bad, there are a few sectoral indices that fared even worse. Take BSE Realty index for example. The investors in this index at the start of the previous year had to suffer the embarrassment of losing more than half of their wealth by the time the year came to an end. The capital goods index wasn't far behind either as it also shed close to 50%. The FMCG index was perhaps the only saving grace, edging higher by 10%, a very good performance in the context of the things.

    Source: ACE Equity

    But as Mr Buffett, the Oracle of Omaha has said, the investor of today does not profit from yesterday's growth. Thus, if we have to profit from our investments in the coming year, we will have to make an attempt to identify the sector that is likely to outperform the rest in the current year.

    In doing so, one thing can prove to be of enormous help. And it is nothing but the phrase that has been mentioned right at the beginning of Benjamin Graham's magnum opus, Security Analysis. It says 'Many shall be restored that now are fallen and many shall fall that now are in honor.' Contained within this phrase is a wealth of information we believe. In fact, the phrase, we believe, outlines one of the cornerstones of successful investing. It argues that nothing can go up forever and nothing can keep coming down forever. The reversal of the trend is nearly as immutable as the principle of gravity perhaps. Thus, the outperformer of today will turn into an underperformer of yesterday and vice versa.

    Source: BSE India

    Applying this principle to the question that we are trying to answer leads us to the point that 2012 may well be the year of power sector and capital goods sector than say the FMCG sector. Even a cursory study would confirm what we are trying to say. While quite a few FMCG stocks are now looking overpriced from a medium term perspective, valuations of the power and capital goods sector stocks in comparison are much more attractive we believe.

    And it isn't as if the demand for these sectors has reached its saturation point. If India were to take its GDP growth to the next level and lower its inflation rate, both power and capital goods sectors will have a very important role to play. Thus, investing in strong companies from these sectors is a bet that is expected to pay out more handsomely than say investing in an FMCG company or even a pharma company for that matter.



    Equitymaster requests your view! Post a comment on "Which sector will outperform in 2012?". Click here!

    2 Responses to "Which sector will outperform in 2012?"


    Aug 11, 2013

    The prediction did not work out till date, FMCG, IT and Pharma still outperforming



    Jan 11, 2012

    I am pleased with the analysis.

    Equitymaster requests your view! Post a comment on "Which sector will outperform in 2012?". Click here!

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