Diwali Strategy

What should be your strategy for the next Samvat?

Samvat 2074 has surely been a challenging period for investors. Global cues like the trade war, the China slow-down and oil prices spooked prices. FIIs were selling aggressively in India and rising oil prices hardly helped the cause. It is in this scenario that Nifty has given negative returns during the year. The big question will be what the coming Samvat year is like? It will be stock specific year. Here are four themes to work on this Samvat 2075.

Focus on consumption

This is likely to be the big story in the Samvat 2075 notwithstanding valuations in the market. P/E ratios may be high but this is theme that will benefit from a rise in income levels. GST has been a big boost to these consumption stocks and they are likely to get the benefit of better logistics management. Also, FMCG companies have finally got over their price wars and prices are a lot more favorable. With rural markets opening up, we are likely to see top-line and bottom-line growth in consumers.

Rural themes will stay

This could be another big theme to bet on. With MSP at 150% of cost, themes like agrochemicals, fertilizers, hybrid seeds, drip irrigation systems could give good returns. Also look at secondary beneficiaries of rural consumption. The goal to double farm incomes by 2022 could also be a big boost to rural theme.

PSU banks could be dark horse

Not many analysts are talking about the PSU banking theme but that could really be the dark horse. We have seen PSU banks like BOB and Union Bank report stellar results. At least, there are hints that the NPA cycle may have bottomed out for now. Also the Rs.1 trillion that is going to be recovered via the NCLT process will lead to direct write backs by the PSU banks. With the PCA in action, we may not see a worsening of NPAs by the more vulnerable banks. The capital support from the government will continue to benefit the PSU banks as the credit creation is also likely to pick up in the coming months. Healthy credit growth is already visible and that will also direct these banks. Pick quality PSU banks for this Samvat and take a long term view on these banks.

Be selective on NBFCs

The very mention of NBFCs may instill fear in investors but you need to separate the wheat from the chaff. The IL&FS types of maturity mismatch NBFCs are to be strictly avoided. But, stocks in consumer finance and agri finance are likely to benefit in a big way. Also, these NBFCs are lending and borrowing at the short end so risk is also lower. With PSU bank lending picking up, last mile could emerge as another big opportunity. Be selective and focus on quality NBFCs that have corrected. That could the big story!

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