Vijay Kumar Gaba

 If we consider the sector wise performance since April 2020, there exists huge disparity between various sectors. While Metals and IT have remained massive outperformers; the consumer (FMCG & media) and PSU Banks have been lagging far behind. Auto, Services, Pharma, and Infrastructure have performed mostly in line with the benchmark Nifty.

Pharma and Infrastructure performance is little surprising as both the sectors had major catalysts in Covid19 and massive government spending on infra building to stimulate the sagging economy.

But what is most surprising is the lack of investors’ interest in PSU banks. Notwithstanding, numerous research upgrades of SBI; government beginning the process of disinvestment in couple of PSBs; improved profitability shown by all the PSBs in FY21; and a market heavyweight buying material stake into Canara Bank; and many private sector lenders faring much worse than their Public sector peers - PSU Banks have failed to impress the traders and investors alike. We may attribute this underperformance to a number of factors, e.g., huge losses suffered by investors who invested in these banks in past 4-5years; material equity dilution to bridge the capital inadequacy gap; uncertainty about how the Covid19 related stress will reflect in bank books etc.

Impact of Covid19 pandemic on consumers’ income and consumption behaviour might have impacted the sentiment towards the consumption sector. The displacement of a large number of workers due to pandemic may also have been a factor impacting the consumption. Notwithstanding the huge stimulus to support the household consumption, the consumption growth has been lower than the estimates. Of course expensive valuation due to outperformance of stocks in previous years may also be one of the factors.

The question now is – “Do we have enough catalysts present to cause a major sectoral rotation in the markets?”

Will a weaker USD, sharp outperformance, and expensive valuations result in traders and investors moderating their preference for IT sector?

Will supply augmentation due to easing logistic constraint, and demand tapering due to inexorbitant commodity prices, result in softening of commodity prices and therefore traders rotating out of metal stocks?

Will the well managed fiscal conditions, reasonable valuations, improved earnings and growth visibility and an earnest beginning to implement the National Asset Monetization Plan, spur interest in infrastructure sector?

We would know the answers to these questions in due course; nonetheless it is not a bad idea to be alert and keep a close watch