Investors see IT, FMCG stocks delivering in the short-term

MUMBAI: Cyclical stocks that ride an economic revival may still be the best bet for long-term investors, but the recent market crash has made some market experts look at defensive stocks—especially technology stocks—in the short term.

The BSE IT index is the only sectoral index to gain this year, with a 7.57% rise. In contrast, the BSE FMCG index and the BSE Healthcare index are down 1.71% and 7%, respectively. Meanwhile, the benchmark Sensex is up 0.65% for the year.

In 2017, the IT and healthcare indices rose 10.83% and 0.5%, respectively, underperforming the benchmark Sensex, which gained 28%, its best yearly performance since 2014.

The BSE FMCG index, meanwhile, gained 31.54%, beating the Sensex. “This is too small a correction to change the strategy. The message from global and domestic market is clear—economic growth is back, earnings will come back. In a scenario like this, sitting on growth stocks i.e. cyclicals may be a good idea from a long-term perspective,” said Anand Shah, deputy CEO and head of investments at BNP Paribas Asset Management India.

“That said, given the recent decline, defensives may outperform cyclicals over the very near term. Among defensives, FMCG and IT look good at this point, while pharma is not yet attractive. That said, we are not changing our long-term stance of focus on growth stories,” said Anand.

The likelihood of an increase in tech spending has spurred the outlook for export-focused Indian software companies.

On January 15, Morgan Stanley upgraded its view on the Indian IT industry to “attractive” from “neutral”.

“…we believe a turnaround in IT spending is imminent, which could quickly turn sentiment on these stocks,” analysts Parag Gupta and Gaurav Rateria said in a note.

“While structurally the sector faces risks from automation and a slower pace of market share gains from global vendors, we believe a cyclical rally could be in the offing,” they added.

Morgan Stanley also upgraded Infosys Ltd, Tech Mahindra Ltd, HCL Technologies Ltd and Mphasis Ltd to overweight from equalweight, and raised the rating for sector leader Tata Consultancy Services Ltd (TCS) to equalweight from underweight. 25 20 15 10 5

THE BSE IT INDEX IS THE ONLY SECTORAL INDEX TO GAIN THIS YEAR, WITH A 7.57% RISE, WHILE

THE FMCG INDEX AND THE HEALTHCARE INDEX ARE DOWN 1.71% AND 7%, RESPECTIVELY

Jan 2, 2007