Use the sector filter

Sector indices are undertraded in India. Nifty Futures trading is more than the stock futures volumes and Nifty options is mainly the option market of India. What happened? Why such a skew towards one index? Why doesn’t India trade sectors? There can be a few reasons. First, investors believe that it’s easy to understand stocks but not a sector. Second, there is less information on sectors compared to stocks. Third, the idea of owning an index or an indexed portfolio does not seem that natural. Investors don’t regard sector ownership as a natural idea or an extension of portfolio investing.

Hence market participants are either stock specific or they prefer to put their money on Nifty derivatives and trades are fewer in the case of sectors. Another reason is that investors aren’t familiar with the idea of relative performance between sectors. Do the investors perceive that sectors behave like stocks when it comes to polarised performance? Can a sector deliver 50 per cent more than another sector? Such questions have neither been asked nor explained.

The idea of performance cyclicality for sectors
Performance is cyclical and works on all time frames and for all assets. This is why sectors under- and outperform in the same way as individual stocks do. If we look at the three months’ performances, CNXIT is the top performer with 9.76 per cent, while BSE Realty is the worst with -31.71 per cent. This means that one could have made a 40 per cent profit in three months by buying CNXIT and selling BSE Realty.

We looked at the sector performance to filter the top and the worst on a multiple time frame or an integrated basis. A worst sector, according to performance cycles, should outperform. A best sector has already delivered performance and is expensive. This sector’s stocks should be avoided.

After the sector filter, we shortlisted the best and the worst stocks. In the table, we have illustrated the final list of the best sells (reduce) and best buys (hold and accumulate) sector and stock opportunities.
 

BEST & WORST PERFORMERS
Sectors	Top performers		Worst performers
TOP PERFORMERS
BSE-CD	VIP Inds.	Titan Inds.	Videocon Ind	Blue Star
BSE-HC	Orchid Chem	Aurobindo	Piramal Health	Opto Circuit
Bank Nifty	Canara Bank	HDFC Bank	Union Bank	Bank of India
BSE Metals	Bhushan Steel	Tata Steel	Welspun Corp	Nation Alum
CNX IT	Infosys	TCS	Financial Tech	HCL Infosys
BSE Auto	Tata Motors	Exide	Amtek Auto	Maruti
WORST PERFORMERS
BSE-FMCG	United Brew	ITC	United Spirits	Marico
Nifty Midcap 50	Aurobindo	Titan Inds.	HDIL	HCC
BSE-CG	Thermax	Havells India	Gammon India	Suzlon
BSE Power	Siemens	Lanco Infra	Torrent Power	Reliance Infr
BSE Oil & Gas	Petronet LNG	Cairn India	HPCL	BPCL
BSE Realty	Sobha Dev.	Godrej Prop.	Ackruti City	HDIL

The top 12 performer stocks, filtered by sector, are: VIP Industries, Titan Industries, Orchid Chemicals, Aurobindo, Canara Bank, HDFC Bank, Bhushan Steel, Tata Steel, Infosys, TCS, Tata Motors and Exide. The bottom 11 performer stocks (worst rankers) are: United Spirits, Marico, HDIL, Hindustan Construction, Gammon, Suzlon, Torrent Power, Reliance Infrastructure, HPCL, BPCL and Ackruti City.

Market view
The market bias remains negative now that Nifty has completed the second corrective wave up and pushes lower in the third impulsive wave down. A break sub previous minor lows at 5,700 levels would suggest a further fall till the next supports at 5,550-5,400 levels. The preferred negative view stands challenged above 6,100 levels. NIFTY VIX and INR pushed higher as anticipated. Key levels to watch lie at 45.6 in the case of INR and 22 in the case of NIFTY VIX. Any pause should be for a sub-minor degree, after which the ongoing previous trend should continue. And if you have the sector filter stock picked allocations, you are ready to outperform.

The author is Head of India Research with Orpheus CAPITALS, a global alternative research firm