Best performing sectors in 2021
More than sixteen months later, the pandemic situation remains the same but the stock markets tell a different story. Benchmarks have reached new all-time highs.
While most sectors have been affected, they have made a comeback. Sectors such as IT and healthcare outperformed others in 2020 in the wake of the pandemic, while others underperformed.
Let’s take a look at the top performing sectors from 2021 to date.
# 1 Metal
You guessed it right. The metal would be anyone’s first estimate of outperformance in the recent past.
Since January 2021, the BSE Metal index has outperformed all other indices and gained 79%.
The main contributor here is the index heavyweight Tata Steel, which has gained 120% since the start of this year.
After Tata Steel, we have APL Apollo Tubes which is up 104% since January 2021.
The other index constituents Vedanta, JSW Steel, Hindalco and SAIL are up 80-93%.
Coal India is the only one lagging behind the index which only gained 6% on an annual basis (YTD).
If there is anything more surprising than the rally in the markets since March 2020, it is the performance of metals stocks.
Metals stocks rebounded according to estimates of record growth in domestic demand and China putting metal export restrictions on green concerns.
There is still enormous potential for new mining capacities for iron ore, bauxite and coal and considerable opportunities for future discoveries of underground deposits.
In addition, infrastructure projects continue to provide lucrative business opportunities for steel, zinc and aluminum producers.
Iron and steel are an essential component of the real estate sector and similarly, demand for metals is expected to continue given the high growth expectations for the residential and commercial building industry.
Brijesh Bhatia, senior research analyst at Equitymaster, called it the sector of the year in early 2021.
Brijesh is however bullish on the sector. He believes metals stocks are ready to start the next stage in their rally.
Watch this video to learn more.
# 2 IT
After metals, we have the information technology (IT) sector.
The BSE IT index has gained 30% since the start of this year.
The index comprises 51 components among which Majesco (436%), Happiest Minds Technologies (324%) and Brightcom Group (318%) significantly outperformed the others.
Other big winners include Tata Elxsi (129%), eClerx Services (140%), Sonata Software (122%) and Persistent Systems (109%).
Among large IT stocks, Wipro gained 54%, while Mindtree rose 69%. Infosys and TCS gained 32% and 13% respectively.
The only lagging behind in the index is Ramco Systems, which lost 17%.
The Covid-19 pandemic added a spark to existing trends as people shopped from homes, searched for entertainment on OTT platforms. IT companies have taken advantage of this trend.
Brokerages are bullish on IT stocks for reasons of a strong demand environment, improved visibility, sustained margins and improved free cash flow.
Not only did IT companies have some of their best results in the June quarter, but they are also facing a slight increase in attrition rates due to a war for talent in the industry and, like lateral hires. can put pressure on the company’s margins, this has led to an increase in hiring. new graduates.
According to The Economic Times, the IT industry is expected to experience a five-year mega growth cycle due to the speed at which US businesses are transforming digitally.
# 3 Real estate
The BSE real estate index gained 28% on a YTD basis.
A single stock in the index doubled the money of investors, Mahindra Lifespace Developers, who gained 105%.
Other winners include Indiabulls Real Estate (76%), Sobha (76%) and DLF (48%).
There are many reasons that have supported the real estate industry.
Increased demand for housing.
Lower interest rates.
Good results from the best companies
Care should be taken when selecting stocks in the real estate sector.
Here’s what Tanushree Banerjee, Co-Head of Research at Equitymaster, has to say about the real estate industry.
The biggest drag for real estate players is high debt and with rising interest rates investors should be wary of real estate companies which tend to go into debt and eat with low cash flow. Also, it is a sector where investors must be very attentive to the quality of management. Poor accounting and lack of corporate governance have been the root of the poor performance of many large real estate companies in the past.
With real estate stocks on a roll, how long do you think the rally will last?
The outlook for the sector looks much better than a year ago, but with the pandemic far from over, there can be volatility.
It remains to be seen how the real estate sector will behave when the activity reopens.
# 4 Power
India’s electricity sector has been the one that has achieved reform success over the years.
Currently, India is the world’s fourth-largest energy consumer, with growth forecast between 2019 and 2040 representing a quarter of global electricity demand, the highest in history.
An important feature for India’s energy segment is that the government has opened up 100% FDI in the sector for investment and private energy players to enter comfortable.
The BSE potency index is up 28% since the start of this year.
The main contributors to these gains are Adani Transmission and Indian Energy Exchange (IEX) which are up 120% and 89%, respectively.
The other winners are Adani Power (79%) and Tata Power Company (71%).
The only laggard here is Adani Green Energy whose shares have fallen 15% since January 2021.
# 5 Health
Just like last year, the healthcare industry is in the spotlight, performing in tough times.
The BSE healthcare index has been up 21% since January 2021. The index has 70 stocks and the earnings of these individual stocks are much higher than the index.
The main contributor here is Hikal, who gained 275%. In second place is Max Healthcare, which jumped 102%.
Other contributors include Laurus Labs (99%), Shalby (94%), Poly Medicure (85%) and Caplin Point Labs (81%).
Healthcare has been one of the best performing industries in 2020. It continues to do well in 2021 as the demand for life-saving drugs and immune supplements increases. In recent times, people have focused more on purchasing health products.
With the vaccination campaign in full swing, there is a good opportunity for pharmaceutical companies as India eagerly awaits various types of vaccines.
The pharmaceutical market grew 37.2% in value for the June 2021 quarter, partly helped by the Covid-19 portfolio.
Going forward, the outlook for the sector would depend on management commentary on growth prospects in India, update on restarting USFDA inspections, price scenario in core business in the US United and traction in specialty products.
Performance of other sector indices
All sector indices trade green relative to their YTD performance. See the table below to see the performance of other sector indices.
You have to look for good companies in an industry to do well in the long term. Companies with decent finances, preferable market leaders because these companies will be the least affected in a crisis.
In addition, an important aspect is the allocation of assets.
The Equitymaster Asset Allocation Guide is an effort to highlight the various factors influencing asset allocation in equities. In this guide, we take a look at how to best allocate your equity investments in order to get the most out of them.
(This article is syndicated from Equitymaster.com)
Never miss a story! Stay connected and informed with Mint. Download our app now !!