Forget the overall indices like the Nifty and Sensex. Focus on sector-related indices. This is not the time to be swayed by the market indices, as they are no longer the key indicators of whether and where to invest. Specific large-cap stocks within the Nifty can influence the latter in unusual ways. Hence, go by the sectors, and pick-and-choose the stocks within them. Think narrow, look at micro. Buy into sectors. But do not completely ignore the macro indices. Keep an eye on them for the larger trends and cues.
A change in investment mindset is crucial for several reasons. The so-called India story has changed considerably over the past few months. More importantly, it will continue to do so at an abnormally fast pace. There is no way a retail investor can keep pace with them, or understand the full implications of the daily developments. Good news will be followed by bad news, which will precede good news, and so on. The picture of the economy, in relation to global patterns, will take shape slowly. Till then, it will remain cloudy and fuzzy.
The proposed reforms in the Goods and Services Tax (GST) structure will favour most sectors, but some will benefit more than the others. Hence, there is likely to be a re-rating of certain sectors like FMCG, electronics and automobiles. Thus, while the stocks of some segments will witness unusual rises, others will see moderate, flat or declining movements. It is imperative for the investors to choose carefully, and be ready to explore options in a diligent manner. A sector-based approach will yield better results in such a scenario.
Similarly, if Trump’s tariffs continue, and there is no bilateral resolution, other segments will face a downward re-rating. These may include pharma and IT stocks, as has happened in the recent past. But if there is an agreement between the two nations, and tariffs come down, the stocks in the same segments will jump upwards. Yet again, investors will need to watch closely, but base decisions on specific sectors, rather than the market indices. They will need to pick-and-pluck the plum shares, and do it carefully.
Public sector and banking stocks have a different narrative. In the past few months, the stocks of state-owned firms have seen a massive decline. Energy stocks are down, and so are many others. The reasons are many. Government expenditure is down, and so is the capex by the public sector. Future order book positions, due to lack of Government projects, are in a slight disarray. The financial performances of the state-owned firms are not up to expectations. The situation may change, but requires attention.
Finally, at least in the short term, one year or so, domestic demand holds the key, as exports will be hit till India finds new markets. Will the exporters manage to push more products locally? Will this lead to more competition, and price cuts, especially if GST layers are reduced, and rates are lowered? How will this impact the toplines and bottom lines of the companies in various sectors? There are too many questions and imponderables floating in the air. The answers are unclear, and fluid. There is too much uncertainty.