Analysts at Morgan Stanley believe that Indian markets may be at their inflexion point given what valuations and sentiment were then, and could be forming base for the next bull phase.
Every time markets have undergone massive corrections, the up move from the toughs has been driven by new leaders. Market movement in the 1990s, for instance, was led first led by consumption in the post liberalisation era, followed by dotcom, then infrastructure and then banking, financial services and insurance (BFSI). Given this, analysts at Morgan Stanley believe that the financials and consumer staples could pave way for and consumer discretionary and healthcare as the leaders in the next bull market.
Notably, the sector has underperformed the market rally that started on March 25 despite being the leader of the preceding bull market – which the analysts say, is a sign of reversal in sector leadership.
Even though the indices are trading much below their January 2020 highs, the recovery seen in the markets from their March 2020 lows has been quite sharp, with the S&P BSE Sensex and the Nifty50 indices gaining 27.61 percent and 27.18 percent, respectively, since then. Against this backdrop,
Ridham Desai, Head of India Research and India equity strategist at Morgan Stanley in a note with Sheela Rathi say that the sector’s market capitalisation is near its historic high but the margins could be peaking. In terms of valuation, too, Morgan Stanley highlights that on the basis of relative EV/EBITDA, consumer staples and energy trade above historical averages, whereas materials, industrials, healthcare, and consumer discretionary are trading below historical averages on EV/EBITDA and price-to-book (P/B) combined, indicating attractiveness in the sectors.
Another way to look at investing opportunities in the current market or when the lockdown starts getting lifted gradually, according to analysts at Motilal Oswal Securities, is to look for sectors and companies that can withstand the economic hit and show earnings visibility despite the pandemic.
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