Neelkanth Mishra suggests these changes for your portfolio
Credit Suisse removed Tata Steel from its 30-stock portfolio and added Hindalco citing an aluminium-to-steel price ratio near a two-decade low, an inversion is likely
Indian benchmark equity indices are near their lifetime highs. At 12.01 pm Sensex advanced to 51,159, around 1,350 points from its all-time high of 52,516, while Nifty 50 is just 77 points away from its lifetime high. Over the past six 6 months, a lot of things have changed with India coming out of the first wave of Covid lifting mostly all lockdown restrictions, the announcement of a growth-oriented budget for a Covid hit economy, a raging second wave that has plateaued now and robust Q4FY21 reported by India Inc saw a non-polarized rally in the markets. Given these changes and subsequent rally in the market, it is a good time to revisit your portfolio and book some profits and do sector rotation in the portfolio.
Book profits
“Book profits on metals, reversing positions added in December-20 and earlier, as P/B relative to the market is near a 10-year high. It can go higher and stay elevated in a super-cycle, but we believe the current surge in apparent demand is due to an extreme inventory cycle and not a structural increase. Slower steel capacity increases due to ESG regulations are not sufficient to justify holding on, particularly given the Tata profit surge is iron-ore driven and should correct,” wrote Neelkanth Mishra, Co-head of Asia Pacific Strategy and India Equity Strategist at Credit Suisse in a report co-authored by Abhay Khaitan and Prateek Singh.
As matter of fact, they have removed Tata Steel from its 30-stock portfolio and added Hindalco citing an aluminium-to-steel price ratio near a two-decade low, an inversion is likely.
In the India Market Strategy report, Mishra also stated that an extreme supply-chain bull-whip is likely driving chemicals too: inputs to adhesives, paints, cement, etc. As costs fall, firms with pricing power should benefit.
Added Asian Paints and UltraTech as cement should benefit from lower costs of globally priced inputs (prices are local); sector price to book is at 11% premium to the market, well below average; near-term concerns on adverse seasonality and weak discretionary demand from low-income households are offset by firm-specific factors like steady share gains.
Credit Suisse
Credit Suisse is underweight on IT, as HCL Tech has been removed due to poor earnings revision compared with peers, and TCS added due to “the near-term underperformance of TCS vs Infosys, with the P/E premium at 30-month lows, which creates some room for TCS to catch up.
The foreign brokerage firm is overweight on banks (private banks plus SBI), as it believes they are the best plays on our expectation of better-than-consensus expectation of medium-term growth.
It has also reduced the weightage of Staples to market weight from overweight by replacing Nestle India with Marico. The brokerage expects Marico to benefit from growth in new businesses.
Stock-specific approach in healthcare sector
Mishra advises to be stock-specific in the healthcare sector and favours companies such as Dr Reddy’s Laboratories and Aurobindo Pharma, which are beneficiaries of Covid-19 drugs, vaccine distribution, and have a better pipeline in the US.
Mishra further wrote that India has caught up on the April 2021 underperformance in May, with the relative price to equity now middle-of-past ranges. Going forward, broader market performance is likely to be in line with global trends till evidence of medium-term acceleration starts showing.
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