Capex-driven stocks like infrastructure, manufacturing, commodities, utilities etc are likely to bee the biggest beneficiaries of the current bull market, said ICICI Securities in a note.
A bull market refers to a sustained period in the financial markets when prices of stocks generally rise, reflecting optimism, economic growth, and positive investor sentiment. If the Nifty 50 experiences consistent and substantial gains over several months or years, it indicates a bull market. During such periods, you witness higher returns on your investments as the overall market sentiment is positive and economic indicators are favourable.
Government capex growth till October 23 in FY24 is up 39 per cent on year with states beginning to contribute strongly. Real estate sales continue to pick up.
GST collections are up 15 per cent YoY at Rs 1.68 trillion for Nov’23, while net direct tax collection grew 22 per cent till Nov 09, ’23 in FY24, containing fiscal deficit to 45 per cent of FY24 budget estimate in the first seven months of FY24.
“Empirically, it is not possible to have a rising GDP trajectory driven by capex cycle without re-leveraging cycle in the economy; hence, this area (large banks) may provide maximum alpha as it is yet to show signs of revival and valuations remain reasonable due to scepticism. In general, financial services can benefit,” said Vinod Karki of ICICI Securities.
Karki also expects pockets of discretionary consumption related to auto, retail, leisure, gaming, entertainment, internet etc. to rise structurally.
“We expect favourable cyclical factors to accelerate in calendar year 2024 driven by capex-cycle firing on all cylinders (reflected in Q2FY24 GDP print), thereby triggering the corporate re-leveraging cycle. Listed corporate profit is expected to approach 5 per cent profit after tax of GDP with RoE moving into value-creating zone of >15%,” said Niraj Karnani of ICICI Securities.
In CY24, uncertainties related to general election outcome and further interest rate hikes would largely be over with no major shocks likely as per the trends so far.
Ironically, FPI holdings of Indian stocks are at a decadal low but showing signs of a reversal while DII inflows continue. “As we enter a classic bull market, we emphasise risk management and are guided by the principle – a rising tide lifts all boats. As the undiversifiable market risk lifts all boats during the approaching bull market, the real skill would be to focus analytical efforts towards finding ‘what not to buy’,” said Karki.
The brokerage is of the view that defensives are stuck in high valuation and slow growth outlook environment: Rural and agriculture sectors are likely to be weighed down by El Nino effects that may continue into next year, thereby impacting broad-based consumption. IT exports could see challenges as developed market economies slow down next year, although a sharp recession-like situation seems to have been averted.
ICICI Securities’ Nifty50 target for CY24-end stands at 23,200; and its top picks are as follows:
Large caps – L&T, Bharti, Coal, ONGC, M&M, Indigo, HDFC Bank, IndusInd Bank, SBI
Mid & small caps – HPCL, CIE Automotive, InfoEdge, PVR Inox, Greenpanel, Astra Microwave, Jubilant Foodworks, Jyothy Labs.
Note: Large-cap – top 100 companies by market-cap rank, mid-caps – next 150 companies (101-250th rank), small-cap companies – next 250 companies (251 to 500th rank), and micro-caps – next 500 companies. Above chart refers to
trailing earnings yield spreads of mid-, small- and micro-caps over large-caps at each point in time. Only profitable companies are considered in the calculations.
Source: Bloomberg, Capitaline, I-Sec Research
4 investment mistakes to avoid during bull markets, according to ICICI Securities:
Mistake 1: Ignoring Fundamentals
Fundamental analysis involves assessing a security’s intrinsic value by examining various financial metrics and economic factors. Suppose we are in a bull market where stock prices are generally rising. A particular company, XYZ Ltd., has seen its stock price surge by 30% over the last few months due to market optimism. Influenced by the prevailing bullish sentiment, you decide to invest a significant portion of your portfolio in XYZ Ltd. without thoroughly analysing the company’s fundamentals.
However, you are unaware that XYZ Ltd. has weak financials, including declining earnings, high debt levels, and a lack of competitive advantages. While the stock price continues to rise in the short term due to overall market exuberance, the lack of solid fundamentals makes XYZ Ltd. vulnerable to any adverse economic developments or shifts in investor sentiment.
As the bull market continues, you may feel reassured by the rising stock price but are essentially exposed to a higher level of risk. When the party gets over, and the economic conditions deteriorate, the stock price of XYZ Limited is most likely to see massive correction, and you will suffer heavy losses.
Mistake 2: Panic selling at an all-time high
The concept applies both at the stock level and market level. The market touched the 20K mark a few months back and may touch the 20K mark soon again. Whenever the market touches or trades near a time high, you may get the feeling of selling your investments for two reasons:
you may be sitting at all-time high gains
you expect the market will crash from the current levels.
You may be tempted to sell now and buy when it falls. To remind you, the market did go down from 20,000 to 19,000 in a week!
Consider a scenario where you hold a stock that has experienced substantial gains, reaching an all-time high. For instance, let us say you purchased the company’s shares at Rs 100 each, and due to a prolonged bull market, the stock has surged to Rs 200, reaching an all-time high, and the market is also at an all-time high.
In a bull market, there might be instances of increased volatility or temporary market corrections. If you panic and decide to sell your shares at an all-time high due to fear of a potential downturn, you may miss out on further potential gains. Even if the market experiences a short-term dip, the historical trend in a bull market suggests that prices often recover and continue to climb.
Mistake 3: Ignoring Valuations
Ignoring valuations in a bull market can be a costly mistake as it may lead you to buy stocks at inflated prices, leaving you vulnerable to potential downturns. Valuation metrics, such as the price-to-earnings (P/E) ratio, help assess whether a stock is overvalued or undervalued based on its earnings.
Mistake 4: Delaying or not making an investment
Last on the list but most common – when the market is at an all-time high in a bull market, most investors stop their SIP or don’t make fresh investments. However, this mindset is because you may assume that the market will fall. However, it may not happen. You may benefit one or two times, but eventually market will break all the highs and create new highs. Suppose you have Rs 1,00,000 to invest in the stock market at the beginning of a bull market. Over the next year, the market experienced a 20% gain. If you delay making the investment or decide not to invest at all during this period, you miss out on potential gains.
Scenario 1: Investor Delays Investment
Initial Investment: Rs 1,00,000
Market Gain: 20%
Delay Period: 6 months
Missed Gain: Rs 100,000 * 20% * (6/12) = Rs 10,000
Total Portfolio Value: Rs 1,00,000 + Rs 10,000 = Rs 1,10,000 (missed gains of 10,000)
Scenario 2: Investor Does Not Invest
Total Portfolio Value: Rs 1,00,000
No market exposure and hence no gains.