Pharma and IT; first port of call

Two sectors that are likely to light up the coming Samvat are obviously IT and Pharma. Let us look at IT first. The last year saw individuals and businesses rely increasingly on technology to sustain their businesses. From cloud to online communication to video conferencing to artificial intelligence; the prospects are virtually endless. In the midst of a tough recovery, India and the world will need the best of Indian technology companies to cut costs and increase output. This is one story that almost looks secular. Pharma could be more of a mixed bag. While the traditional formulations story will benefit from lesser FDA regulations, the real story will be more nuanced. The focus will be on companies that bag orders to manufacture vaccines and anti COVID drugs. The focus will also be on Indian pharma companies focused on APIs as the world looks at a veritable alternative to China. Another story that is quietly building up is in the CRAMS space where the contract research areas could see huge traction in the light of focus on the Atma Nirbhar program. 

Play the GDP recovery too

The 8-9% cut in GDP for FY21 is likely to put India back by 3-4 years. It also means that the bounce will be sharper as companies benefit from a surge in retail and industrial demand. Sectors like steel, copper, electrical equipment and cement could benefit from a revival in the construction sector. Companies in the capital goods space would also gain from the fresh investments that will be planned by companies to boost supply. It is expected that demand for capital equipment from the power, telecom and oil sector is likely to go up in a big way. Of course, as consumer demand picks up, the traditional favorites like NBFCs, banks and even FMCG could turn out to be hot property. The list can go on. 

Some themes to be cautious

At the outset, Samvat 2077 will be more about growth and less of value hunting. As economic growth and demand revive the real story will be about companies that will participate in this growth. A fast growth company at 40X P/E may still be better than a languid utility company at 8X P/E. You have to make your choice. There is one very important theme that is likely to dominate Samvat 2077. The markets will reward companies that are conservative on debt. Focus on those companies that have low debt or where companies are aggressively monetizing assets to reduce debt. That could be a big market theme for Samvat 2077!