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Will classic defensive bets outperform the markets?

Market participants are reading into the developments surrounding the Omicron variant of Covid-19. Let's find out investing which sectors will prove to be beneficial for investors in this volatility

Market | Volatile market | Stock market investment

Nikita Vashisht & Puneet Wadhwa  |  New Delhi 

Frequent bounce-backs and corrections are keeping investors confused about the trajectory. As Covid-19 cases continue to spike across the globe and vaccine efficacy unknown against the new variant, adopting a prudent investment strategy is the way forward to safeguard one’s portfolio. An analysis by ICICI Direct shows that all major corrections since April 2020 got arrested within 9-11% range. And buying in each of these corrections has been fruitful for investors as indices subsequently retested previous highs. Given this, research analysts at ICICI Direct expect to maintain the same rhythm this time around too. In the current scenario, after a 31 per cent rally in the past six months, the benchmarks have corrected 9 per cent from their respective lifetime highs. Therefore, the ongoing correction should be capitalised on as an incremental buying opportunity to ride the structural uptrend But, will putting your money behind the classic defensive bets prove to be beneficial this time? Let’s find out. Over the past few months, healthcare stocks have witnessed retracement while IT stocks have been consolidating in a narrow range. As these stocks form fresh base at higher levels, analysts foresee decent returns from the space in days ahead. Select pharma stocks, for instance, can rally up to 15 per cent on the bourses as discussion around expediting vaccination drive and booster shots to the vulnerable population gains currency. As per tech charts, shares of Alembic Pharma and Cipla are eyeing 15% and 13% upside, respectively, as both these counters are trading firmly above their support zones. Those of Glenmark and Torrent Pharma, meanwhile, may gain between 11% and 15%. That said, the overall industry’s outlook is not very optimistic as growth is likely to slow and export growth could fall to low single-digits. Moreover, there are cost and supply challenges due to energy crisis in China. The other defensive sector – FMCG – can also be on investor radar, though, it is expected to continue with its underperformance. So far in financial year 2021-22, with the S&P BSE FMCG index has risen 6.3 per cent as compared to over 15 per cent gain in the benchmark S&P BSE Sensex during this period. The underperformance was mostly on account of concerns of a slowdown in the overall consumption as a result of rising input costs in an inflationary environment. And data backs this too.

The latest survey by NielsenIQ shows that India’s FMCG grew 12.6 per cent in the September 2021 quarter compared to the same period last year. However, rural witnessed a slowdown due to a dip in consumption with value growth coming in at 9.4 per cent. Volumes, in the rural market, contracted 2.9 per cent due to lower consumption of items like cooking oil and packaged grocery. However, as an investment strategy, analysts are bullish on companies like ITC, Nestle, HUL Colgate and Britannia. Moreover easing input cost pressures, amid drop in crude oil prices, will aid the performance of companies, says AK Prabhakar, head of research at IDBI Capital. He says, the fall in the market from its recent high has further corrected the valuation in a number of these counters. Thus, a blanket investment in defensive plays should be avoided. Analysts suggest focus should be on companies with strong balance sheets and with those having a favourable risk-reward set-up. On Thursday, weekly F&O expiry, monthly auto sales data and global cues will dictate the secondary market trend. The primary market, meanwhile, will be dominated by three public offers. Tega Industries’ initial share sale will enter its second day today while Star Health and Allied Insurance’s IPO will close later in the day. Additionally, Anand Rathi Wealth, will launch its initial public offering today. The price band for the offer has been fixed at Rs 530-550 per share and the company aims to mobilise Rs 660 crore.

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First Published: Thu, December 02 2021. 08:00 IST