Will classic defensive bets outperform the markets?

Frequent rallies and corrections unsettle investors about market developments. Since the Covid-19 cases continue to rise worldwide and the effectiveness of the vaccine against the new variant is unknown, a prudent investment strategy is the right way to protect your own portfolio. An analysis by ICICI Direct shows that all major market corrections since April 2020 have been stopped within a range of 9-11%. And buying any of these corrections has been fruitful for investors as the indices subsequently retested previous highs. Against this background, the research analysts at ICICI Direct expect the markets to maintain the same rhythm this time as well. In the current scenario, after a 31 percent rally over the past six months, the benchmarks have corrected 9 percent from their respective lifetime highs. Therefore, the ongoing correction should be used as an additional buying opportunity to ride the structural uptrend But will it prove beneficial this time around to put your money behind classic defensive bets? Let’s find out. In the past few months, healthcare stocks have seen a decline while IT stocks have consolidated in a tight range. With these stocks rebuilding at higher levels, analysts expect reasonable returns from the area in the days ahead. Selected pharmaceutical stocks, for example, can rise by up to 15 percent on the stock exchanges if the discussion about accelerating the vaccination campaign and booster vaccinations for the population at risk becomes more important. According to tech charts, Alembic Pharma and Cipla stocks are looking up 15% and 13% respectively as both counters trade solidly above their support zones. Glenmark and Torrent Pharma could gain between 11% and 15%. However, the outlook for the industry as a whole is not very optimistic as growth is likely to slow and export growth could plunge to the low single digits. In addition, there are cost and supply problems due to the energy crisis in China. The other defensive sector – FMCG – may also be on investors’ radar, but is expected to continue its underperformance. So far, the FMCG index with the S&P BSE has risen 6.3 percent in the 2021-22 financial year, compared with an increase of over 15 percent in the benchmark index S&P BSE Sensex during this period. The underperformance was mainly driven by concerns about a slowdown in overall consumption due to rising input costs in an inflationary environment. And data back it up too.

The latest survey by NielsenIQ shows that the Indian FMCG market grew by 12.6 percent in the September quarter 2021 compared to the same period last year. In rural markets, however, there was a slowdown due to the decline in consumption, with value growth of 9.4 percent. The rural market volume declined 2.9 percent due to lower consumption of products such as cooking oil and packaged foods. As an investment strategy, however, analysts are optimistic about companies such as ITC, Nestle, HUL Colgate and Britannia. Additionally, easing cost pressures on inputs amid the decline in crude oil prices will help companies perform, said AK Prabhakar, head of research at IDBI Capital. He says the market’s decline from its most recent high has further corrected valuations on a number of these counters. Therefore, a lump sum investment in defensive moves should be avoided. Analysts suggest that the focus should be on companies with strong balance sheets and those with a favorable risk / reward balance. On Thursday, the weekly F&O flow, monthly auto sales data and global cues will determine the secondary market trend. The primary market is now dominated by three public offers. Tega Industries’ first stock sale begins its second day today, while Star Health and Allied Insurance’s initial public offering closes later in the day. In addition, Anand Rathi Wealth will go public today. The price range for the offering has been set at Rs 530-550 per share and the company aims to raise Rs 660 billion.

Watch video

Dear Reader,

Business Standard has always endeavored to provide updated information and commentary on developments that are of interest to you and have far-reaching political and economic implications for the country and the world. Your encouragement and constant feedback to improve our offering has only strengthened our determination and commitment to these ideals. Even in these troubled times resulting from Covid-19, we continue to strive to keep you updated with credible news, authoritative views, and concise comments on current affairs.
However, we have a request.

In the fight against the economic effects of the pandemic, we need your support even more so that we can continue to offer you high-quality content. Our subscription model has had an encouraging response from many of you who have subscribed to our online content. More subscriptions to our online content can only help us achieve our goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism to which we are dedicated.

Support quality journalism and Subscribe to Business Standard.

Digital editor

About Veronica Richards

Check Also

Asian stocks fall despite Wall Street rally; Eyes on fed chair

TOKYO – Asian stocks fell on Wednesday as markets shrugged off a Wall Street rally …