Choosing between value and growth stocks

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The week began on a bullish note with India reporting a positive GDP growth number. India is among the few major economies which steered out of a technical recession after two successive quarters of negative GDP growth.

This wouldn’t have been possible without the innate support from both the government and rock-bottom interest rates by RBI which aided domestic consumption. Equity participants particularly FPIs reinforced their bullishness on India post the GDP outcome which led to the price recovery.

Along with this good news, markets also cheered the GST revenues crossing Rs 1 lakh crore for the fifth time in a row. All these macros are hinting at the fact that this swift rebound in economic activity especially on the industrial manufacturing and infrastructure front will lead to further growth in our economy and markets.

With booming equities, an argument between growth and value stocks has resurfaced. In February, the MSCI World Value Index rose 4.5% in contrast to a mere 0.3% gain in the MSCI World Growth Index. Even back home, the commoditised stocks which had outperformed benchmark indices only a handful number of times in the past for sustained periods, have started moving as deep value plays.

Even a frequent laggard such as the Nifty Commodities index managed to surpass the benchmark index this week. Value stocks have definitely picked up momentum and going ahead the value theme is expected to continue as our economy completely opens up in the second half of CY2021.The value celebration is expected to be accentuated by faster rollout of vaccines, upbeat performance by Indian Inc. in Q4 because of a lower base and resumption of urban India. Investors are advised to look for value buys for their portfolio.

Event of the week

Feb auto numbers were a delight especially on a YoY perspective since there is consistent growth in urban market and strong demand traction. Majority of the passenger vehicle makers along with two-wheelers announced stunning double-digit YoY growth. Additionally, tractor sales have once again managed to achieve robust 20%+ YoY growth prompting towards a resilient rural recovery. It is quite surprising that while excessive fuel prices have impacted some sectors significantly, autos seem to have escaped till now. But, if the rise in fuel prices extends further then the sentiment of buyers may get negatively impacted. Therefore, one should be watchful of auto sales in the upcoming months which would help in understanding the underlying impact of fuel prices and future growth trajectory.

Technical Outlook

Nifty50 index closed the week on a positive note on the weekly chart candle however markets witnessed a choppy week of trading with a negative market breadth. The index closed positive only because of some heavyweight movers like Reliance, TCS and Infy in the week, otherwise it is losing momentum on the upside. Other global indices such as S&P500, Kospi, Taiex also remained weak. On the upside, Nifty is likely to remain capped at immediate resistance of 15270 whereas on the downside immediate support is now placed at 14630. We suggest traders maintain a neutral outlook.

Expectations for the week

In the absence of any crucial events in India, market participants would keep a vigilant eye on the US for any major triggers. Any unexpected outcome in the 3/10/30 year US treasury auctions arranged next week could directly influence bond yields and in-turn equity valuation. Back home, the IPO season is on in full swing with a dozen other primary issues expected in March, showing the excess liquidity in the system. In the past few months, value and cyclical stocks have gained good momentum and investors are suggested to continue to hold these stocks. Since gold has retraced from its highs, investors can look to allocate a small portion of their portfolio towards gold for adequate diversification. Nifty50 closed the week at 14938.10, up by 2.81%.

(The writer is head of equity research, Samco Securities. Views expressed are personal)