in today’s Article, we will talk about 5 such sectors or themes which have been in discussion for some time, And experts are also bullish on these themes.
We will tell you why the market is bullish in these sectors and the top 5 stocks in these sectors.
The first sector is Capital Goods.
First of all, let us understand what is meant by capital goods. Capital goods are those that are used in the production process for manufacturing a product or service.
Taking a simple example, a coffee machine is a capital good, which is used to make coffee.
If we look at BSE Capital Goods Index, from 2001 to 2007 there was a very good rally in the index.
But, after that from January 2008 to January 2021, the index has been almost flat.
But, since January 2021 till now, the index has increased by 76%. So what happened in this sector that suddenly such a big jump came in the sector which was underperforming for 10 years?
A manufacturing boom has started in India, new factories are coming up, existing plants are expanding their capacity, and products demand is increasing and all this will have a direct positive impact on the demand for capital goods.
Public and private investments are growing very fast in India.
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Capacity utilization of companies in sectors such as cement, metals, power, and refining has pent-up, necessitating CAPEX for all these companies.
The order book of capital goods companies is also growing very fast, due to which CAPEX growth is happening at a faster pace.
India is at the inflection point of $2200+ per capita GDP, which can drive consumption growth.
Along with all this, the government is also promoting the manufacturing sector in PLI schemes.
As per some reports, the capital goods sector’s revenue has increased by 18% this year and the margin profile is improving due to raw material inflation.
You can now see on your screen the top 5 companies in the capital goods sector by market cap.
The second theme is the Defense sector.
Indian defense companies are benefiting due to the government’s policy measures like Atmanirbhar Bharat’.
Indian defense companies are focusing only on the domestic market, but also on exports.
In 2014, the export of the Indian defense sector was around Rs. 900 crores, which in 2022 is Rs. 14,000 crores has been crossed.
And it is expected that this number Rs. 19,000 crores by 2023 and can cross 25,000 crores by 2025.
Along with this, the order book of defense companies is also growing rapidly.
So the defense sector which has given good returns in 2022 on the back of the government’s localization push, growing exports,
and healthy order books, market experts demand that this could be an interesting theme for 2023 as well.
Now let us see the top 5 defense stocks by market cap.
The next theme is the Railway sector.
Railway stocks have shown a very strong rally in the last few months.
Railway sector stocks have underperformed so far, mainly due to a lack of development and government ownership.
But according to experts, the buying rally seen in railway stocks is in the hope of a positive union budget.
In the budget of 2023-24, we can see a significant allocation to the railway sector.
The fund allocated in the railway sector in 2014 was Rs. 50,000 crores, which in 2022 was Rs. 2.45 lakh crore has been reached.
The government may reduce its stake in railway companies to meet its disinvestment target which is one of the reasons for the rally in railway stocks.
Due to disinvestment by the government, the expectation of a positive budget, and increasing CAPEX, the expert believes that railway stocks can do well in 2023.
Now you can see the top 5 railway stocks by market cap on your screen.
The fourth Sector is PSU Banks.
You must have heard about PSU Banks, this year PSU Banks stocks have outperformed the market by a huge margin.
Nifty PSU Bank Index has gained over 67% in the last 1 year. But this is just the recent scenario.
If we go back a bit, we come to know that since 2011 till now PSU banks have not given good returns.
Between 2012 and 2022, India’s total market cap is expected to be Rs. 58 lakh crore to Rs. 281 lakh crore.
In the same period, the market cap of private banks increased from Rs 41 lakh crore to Rs. 252 lakh crore,
but the market cap of PSU banks increased from Rs. 16 lakh crore to just Rs. 37 lakh crore only.
PSU banks have grown at just 8.7% CAGR as against 20% CAGR with private banks.
This is because the poor asset quality of PSU banks has been a reason for their underperformance over the years.
But especially in the last 5 years, PSU banks have cleaned non-performing assets from their balance sheets by aggressively provisioning.
Because of this the future profitability and financial ratios of banks are showing improvement.
The gross NPA has come down to around 11% in FY18, which has come down to around 6% in FY22.
Valuation-wise, the re-rating of PSU banks has taken place due to a clean balance sheet.
But now the question is, can these rates be higher in multiples in the future?
PSU banks may see margin expansion in the coming years, which could lead to another re-rating round, according to a Morgan Stanley report.
Margins, liquidity position, reasonable NPA formation, lower reversal of interest income, and lower wholesale deposits indicate a good future for PSU banks.
PSU banks have improved their corporate lending practices. Till now the reason for their high NPAs is the huge wholesale loans.
But across India, the growth profile and credit ratings of corporates have improved.
The corporate books which used to be the reason for the failure of PSU banks, now seem to be the reason for the growth of PSU banks.
Higher public and private CAPEX, and increased utilization of working capital limits, indicate the future growth of corporates.
PSU banks have more corporate loans than private banks, and this is because PSU banks can benefit from India’s manufacturing boom cycle.
Now you can see the Top 5 PSU Bank Stocks by Market Cap on your screen.
The next emerging theme is the Fertilizer sector.
The name of the stock of the fertilizer sector would also have been heard in your ears in the past.
Fertilizer stock has seen a rally of about 128% in the last 1 month.
Fertilizer stocks have been facing challenges like rising input prices and erosion in margins for some time now.
But now there are 2 major reasons behind the rally in the fertilizer sector.
The first is that Russia has imposed an export duty of 23.5% on its fertilizers priced above $450/tonne.
This tax will come into effect from January 1, 2023.
This affects the increase in the global price of fertilizers, and India’s fertilizers will become more competitive in the global market which is positive news for Indian fertilizer companies.
Talking about the second reason, it is expected in the market that in the budget of 2023, the government can increase the subsidy of urea.
Farmers will benefit from this decision, and the cost of raw materials will come down, and the margin of fertilizer companies will also improve.
Since the government reduced the urea subsidy in the 2022 budget, industry experts expect that the reintroduction of subsidy in the 2023 budget pushing the sector.
Now you can see the top 5 fertilizer stocks by market cap on your screen.
These were the 5 themes on which the market is bullish for the next year i.e. you should keep an eye on these themes in 2023.