THE LONG TERM BETS

about 1 month ago
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When in the market, you want to have stocks, which you bought when the chips were down and are able to sell at new record highs.

At a time when the markets are volatile and the sentiments are uncertain – should you worry about Omicron or not; we are seeing three sectors which, despite this uncertainty are poised to do well. They are based not just on gut feel but more on logical thinking. Have a look:

1: IT sector – This sector will be having a good run. Various pointers to this fact;

  • Earnings from Accenture are always a harbinger for the Indian IT sector and the numbers were very encouraging. That’s not all, the company raised its FY22 revenue guidance by 700bps to 19-22% y-o-y cc. Management highlighted a strong demand outlook, which bodes well for Indian IT. Amidst supply pressures, Accenture highlighted improved pricing, cost efficiencies and growth to be key margin levers – exactly what will reflect in the performance of the IT companies here.
  • Upcoming results will also show stability and strong growth.
  • Many companies are building IT infrastructure and moving swiftly towards digitization – a direct consequence of corona, which will benefit the IT companies
  • Most of these IT companies are virtually debt free or have very low debt and in uncertain times, that’s what investors look for.
  • The rupee in 2022 is expected to show more weakness, at least till mid-year as Fed hikes interest rates and gives IT companies a direct benefit as on an average, more than 60% revenue comes from North America.
  • Higher wage inflation and supply side pressures will persist for  few more quarters.

2: Airlines and all travel related companies

  • You try booking a flight or a hotel anywhere in India today, either its unavailable or they are charging the sky despite which people are buying. The need to get out and experience life after 2020’s lockdown is huge and that explains why there is this huge demand.
  • By mid-year 2022, airline and hotel stocks will once again take off as pricing is currently at a two-year high and this pricing power will remain through most of next year.
  • Though the near-term worry on account of Omicron will remain, the long-term story for the airline companies is good.

3: Automobile sector

  • Q3FY22 numbers might disappoint as the companies have simply not been able to deliver on account of supply constraints. But car companies are saying that they are sitting on a completely booked capacity for next 4-6 months.
  • The shortage of semi-conductors will not go away any time soon but imagine - over 7 lakh buyers are in queue to take delivery of their cars.
  • Mahindra & Mahindra, which have seen superlative demand for new launches such as the Thar and the XUV7OO SUVs. The order-book has even surpassed their internal expectations by a wide margin with delivery schedules spread across months.
  • Chip shortage issues are expected to ease off gradually over FY23. This in turn is expected to reduce the waiting period – leading to an increase in production volumes of vehicles. Also, softening in commodity prices next year bodes well for the sector.
  • And if auto sector jumps back up, auto ancillaries will also do well.

Well, these are the immediate three sectors which hold the promise of a good long- term story in these turbulent times. Frontline stocks in these will be the safest bet.

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