These 5 Sectors Should Have Your Attention Now

Strong corporate earnings, hopes of a quicker economic recovery, and strong global cues have boosted the stock markets in recent times.

However, after hitting record-high levels, the market has witnessed some correction and volatility in the last few sessions.

While a correction can put a dent in the existing position of investors, it serves as an opportunity for those that want to enter the market.

But which sectors should one invest in?

FMCG, IT, and pharma sectors topped the charts in the financial year 2021.

Other sectors such as metals, real estate and banking were down in the first half of the year and later saw a recovery as lockdown restrictions eased.

According to experts, top performers of the year such as pharma and IT could still retain the baton for 2021 while other sectors could shine as the economy shows its green shoots.

If you are looking to invest in equities at the moment, here are the top 5 sectors you should consider investing in.

#1 Pharma

After a muted performance for the last four years, the Indian pharmaceutical sector emerged as a winner during the pandemic and proved to be a saviour for investors in 2020.

While several factors including incremental API (active pharmaceutical ingredient) opportunities played a vital role in boosting the confidence of investors, the sector could continue to remain in focus in 2021.

Tailwinds for the sector include the least scope for pricing pressure within India and developed markets.

The National Pharmaceutical Pricing policy has already covered many molecules. It's unlikely that Indian generic products in developed markets would undergo further price cuts as the generic business appears to have stabilised.

The sector will also have a minimal impact on any adverse outcomes of the US Food and Drug Administration (FDA), as a large number of Indian pharma companies have automated their production facilities and diversified their production base.

Moreover, there is a sizeable opportunity for the sector on the back of the Covid-19 vaccination process.

For more information about the sector, check out the pharma sector report on our website.

#2 Information Technology

The IT sector in India grew 2.3% YoY on the back of rapid acceleration in digital transformation and technology adoption during the pandemic, even though global output shrunk by 3.2%.

Despite headwinds in 2020, the sector contributed about 8% to the national gross domestic product (GDP).

While Indian IT companies have always provided a range of technological services, the pandemic highlighted the importance of having a proper IT infrastructure and accelerated the push towards digitisation across the globe.

Digital adoption and cloud migration services were in demand, opening up avenues for emerging technologies such as intelligent data management.

As a result, the sector has a significant pipeline now which is extremely lucrative. Spend on IT services in the next few years is expected to grow between 8-9% compared to 4-6% in the pre-Covid-19 era.

Technology is expected to play a big role in 2021 as companies shift from on-premises licensed software to subscription-based SaaS models and adopt new software collaboration tools.

The probable introduction of 5G by the end of 2021 could also add ample opportunities and use cases, leading to the new cybersecurity categories.

For more information about the sector, check out the IT sector report on our website.

You can also check out senior research analyst, Brijesh Bhatia's latest video on the sector: Why I'm Bullish on IT Stocks.

#3 Steel

The Indian steel industry like its global counterparts belongs to one of the core industries that is looking forward to growth in 2021.

In this context, the short-range outlook for steel indicates a 6.1% growth in global steel demand at 1,874 million tonnes (MT) in 2021 compared to a 3% growth in 2020.

The traditional demand driving sector for steel continues to be construction, which with the help of real estate construction and infra stimulus would play a stellar role in strengthening steel demand.

The demand for logistics-related facilities to support ecommerce, along with green recovery programmes and infra renewals, would also play a part.

Moreover, the extension of the Production Linked Incentive (PLI) scheme to speciality steel would bode well for the sector. Within this scheme, there is a financial outlay of Rs 63.2 bn that has been approved for five years.

This would aid domestic companies in enhancing their manufacturing capabilities and developing new products to promote import substitution as well as enhance exports.

For more information about the sector, check out the steel sector report on our website.

#4 Chemicals

During 2020, India emerged as a hub for specialty chemicals, supported by favourable policy measures such as anti-dumping duty on imports and a proposal for production-linked incentives.

As a result, chemical stocks rallied, making the sector one of the most lucrative to invest in.

Chemical manufacturers also benefited from a 'China-plus-one' strategy that made companies around the world diversify their supply chains from China amid geopolitical concerns.

With India's global market share in this sector going up, the future holds a lot of potentials as several big companies invest in expansion and distribution.

Innovation is also changing the sector drastically as more companies invest in research and development (R&D) and technology for better services and product quality.

Since global investors moving out of China have India on their radar as a potential market, the chemicals sector may be promising this year.

#5 Real Estate

The real estate market in India is the second-highest employment generator in the country after agriculture.

The sector which accounts for 6-7% of the economy is interlinked to as many as 250 allied sectors.

By 2025, the sector is expected to account for 13% of the nation's economy. With timely execution of all the needed reforms, it could become a major wealth creator in the forthcoming decades.

The government's structural reforms such as GST and RERA and added liquidity in the banking system has already restored buyer confidence in the real estate sector.

The industry is now bullish for growth ahead and optimistic of an unprecedented recovery.

Low-interest rates and homes with good amenities should help keep up the momentum of sales in 2021.

Richa Agarwal, Lead Smallcap Analyst at Equitymaster and Editor of the stock recommendation service, Hidden Treasure recently recommended a stock from this space.

Subscribers can read the recommendation report here.

And if you are not a subscriber, here's where you can sign up.

Now that you have a list of promising sectors, what should you do?

For any investor with clear goals and an essential understanding of the above sectors, 2021 brings new opportunities.

However, within these sectors, one must understand the nature of the business before investing, whether it is for the short term or the long term.

In times like these, it would bode well for investors to stay invested in good companies such as ones with good balance sheets and those run by market leaders because they are least likely to be unable to survive the storm.

Further, one should keep in mind the asset allocation within one's portfolio to ensure optimum diversification.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a recommendation and should not be treated as such. Learn more about our recommendation services here...