It’s Time to Make Space for Beaten Down Sectors in Your Portfolio
Experts advise that individuals with higher risk appetite may make a tactical allocation in depressed sectors like infrastructure, banking and small & midcaps, reports Prashant Mahesh
Want to make 100% returns from stocks? Bet on infrastructure. Better still, wait for a few months for IPOs to hit the market. These are some of the sales pitches that are going around in the market these days, say financial advisors. Buoyed by the thumping majority to the new government and the upbeat mood in the market, many advisors are busy trying to sell themes such as banking, infrastructure, mid- and small-caps and IPOs that they feel would offer eye-popping returns in the coming days. According to market participants, the sudden fancy for these themes is mainly due to two reasons. One, themes are easy to be sold to investors. Two, many stocks in these sectors were beaten down during the last few years due to policy paralysis, series of scams and a lack of governance issues. “During the last three years, project approvals were delayed, land acquisition took time, critical raw material like coal was unavailable and the interest rates were high… all of these factors led to poor performance of these sectors,” says Alok Ranjan, portfolio manager, Way2Wealth. The prevailing theme of a pro-business government at the Centre is fuelling hopes that these sec- tors are likely to deliver in the coming years. That is why many experts are asking investors with higher risk appetite to allocate a small portion of the portfolio in these themes. “While 80% of your portfolio should still remain in diversified equity funds, those with a higher risk appetite could make a tactical allocation of 20% of their portfolio to some of these themes,” says Harshvardhan Roongta, chief financial planner, Roongta Securities.
Why Themes Make Sense?
The CNX infrastructure index is down 1% in the last three years, while the CNX PSU Bank Index is down 9%. Many expect infrastructure projects to be on the fast track as the BJP, during its election campaign, had proposed adoption of a single-window clearance for large infrastructure projects. It could be a big shift from the current practice of multiple approvals from the central and state government agencies. If this happens, infrastructure companies could benefit. Experts also expect the interest rates to moderate in the next six to nine months, which will lower the cost of funds for projects.
“Policy implementation in right directions by the government would give confidence to the RBI to moderate interest rates,” says Sunil Sarda, director and CEO, Systematix Shares. Lower interest rates could reduce NPAs and help the public sector banks. With the economy bottoming out, many expect growth to move upwards to the levels of 7-8% from a low of 4.4% and recommend mid-cap funds. “Mid-size companies tend to outperform large caps in periods of high economic growth,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.
Diversified Funds for Novices
These beaten down sectors may have a huge potential to deliver, but they are not meant for risk averse investors and those looking for huge gains in the short-term, warn experts. Most of these themes have already witnessed a huge run-up in the last three months on the expectations of a reversal of fortunes. The Bank Nifty is up 43%, the CNX Infra is up 30%, and the CNX Midcap Index is up 26% in the last three months. Due to the sharp rally, experts ask investors to make a tactical allocation in these themes only with a longterm perspective. “Thematic funds could be volatile, and one would have to time entry and exits,” says Dhawan.
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