Economic up-cycle is ahead | Are investors prepared to benefit from this

Indian economy was facing a down trend even before the covid-19 pandemic and covid made this even worst as shown in below chart. India's GDP growth was -23.92% and -7.54% for Q1 and Q2 2020-21 respectively. We are in a recession technically.

Image source: www.statisticstimes.com

So, why am I saying economic up-cycle? Let's find this out in this blog and what should retail investors should do right now.

The economy is growing negatively but we all know that this is due to strict lockdown which India imposed and economic activities were completely shut for months. And as lockdown restrictions were eased out, economic recovery was very sharp and unexpected. Some economists were attributing this recovery to festive season and pent-up demand however, it is very clear now that it is broad base economic recovery. GST collection figures and corporate earnings of December 2020 quarter are clear indicator of consumer spending behavior and economic activities of the country.

Image source: www.pib.gov.in

Budget 2021 announced by Finance Minister Nirmala Sitharaman made it very clear that this uptrend will continue in future. A significant increase in expenditure on infrastructure sector as announced in the budget will lead to a broad base up-cycle in economic activities as this will increase corporate profits, jobs, more money in consumers pocket and in-turn more savings and consumption.

What should we do as an investor now?

From above, it is very clear that corporate earnings of infrastructure and economy related sector like auto, cement, metals etc will grow in future and this increase in earnings will lead to higher stock prices and maybe PE expansion of these companies.

So, in my opinion, investors should add stocks from these sectors to benefit from this up-cycle and avoid high PE consumer related stocks as they might under-perform in coming years.

Let me know your views in comment section below.

About author:

Manish Negi is a Chartered Account and an experienced auditor.

Twitter - www.twitter.com/camanishnegi

Comments

IT Services Companies like TCS and Infosys - Must have in your portfolio?

With all the major IT services companies like TCS, Infosys and HCL Tech trading around their All-Time-High, let's discuss key matrices of these companies and see the opportunities in these companies from here for retail investors, if any exist. Growth prospects Let's start with growth, because in the end, growth will decide the stock price. If company is growing it's revenue, margins are consistent or expanding, net profit is increasing, stock price will have no option but to go up in the long run. As world is moving fast towards digitalization after covid-19, adoption of tech and tech-enabled services are need of the time and is critical for businesses now. And Indian IT services companies have a role to play here, as technology provider and at times technology enabler. Future is looking good from here which we can see in revenue guidance of top companies which is going as high as 20% per annum. Dividends/ Buybacks/ Bonus Shares These companies are huge cash generatin...

IPO frenzy is on | What should you do?

March is going crazy with IPOs. There is a long list of companies coming up with initial public offer. to raise funds. So, you must be wondering, why is it that so many companies are lining up for money at the same time. Let's discuss this. There could be various reason to it but following are also very obvious reasons: 1. Surging retail participation in equity markets - This is really good for companies planning an IPO as this can give easy exit to Private Equity investors and at times gives opportunity of encashing high valuations to the promoters also. 2. Response to recent IPO listing - This is a confidence booster. Almost all the recent IPOs were oversubscribed and listed at bumper price, way above its IPO price, which was already overvalued in most of the cases. Let's have a look at current price of recently listed companies. Source: StockEdge We can see that most of the companies are trading at a price which is lower than listing price in most of the cases and even b...

New Age IT Businesses | Are you investing in these?

Information technology service sector of India is well known and well established now. Biggest IT service company in the world is now an Indian company and there are total 4 Indian companies in the world top 10 list. These are TCS, Infosys, HCL Tech and Wipro. However, these companies are traditional IT service providers and are considered as "Old Age" IT service companies. A lot of investors consider these matured and don't expect significant growth in this industry now. Image source: Economic Times In this digital world, technology is rapidly changing and companies are adapting to newer technologies. With these changes comes new security and technical challenges and there are companies which are converting these challenges into opportunities and working in this highly growing segment. Following are few technologies or areas to name which were not common few years back. New consumer conversions (acquisitions, engagements and transactions) through relevant mobile advert...

The Third Eye of Investor

Search This Blog