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

The Economic Times - - Companies -

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.

They can EX­PERTS SAY These funds

Make a

Stocks in these 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 HARSH­VARD­HAN ROONGTA,

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