Stocks to buy | Multibagger stocks: 2020’s multibaggers will most likely come from these sectors

Blue chips continued to outpace the broader market for the second straight year in Calendar 2019. However, select stocks across insurance, asset management companies, paints, consumer food, power generation and pharmaceuticals sectors managed to deliver up to 222 per cent returns to investors during the year.

And now analysts say pharma will be the story to play in Calendar 2020. Money managers at top fund houses and heads of research at leading brokerages who took part in the Yearend Survey of ETMarkets.com voted most for pharma. They also identified metals, capital goods, chemicals, auto, banking, large NBFCs, cement and construction as themes with high potential in the upcoming year.

“In anticipation of better economic growth, we believe this is a good time to invest in cyclical sectors like metals, energy, capital goods, industrial and infrastructure. We are also positive on chemicals and export-oriented companies,” said Vinod Nair, Head of Research, Geojit Financial Services.

The BSE Metal index plunged the most at 15 per cent so far in 2019 amid the trade tensions between the US and China. It was followed by Auto (down 13 per cent), Capital Goods (down 9 per cent), Power (down 5 per cent), PSU (down 5 per cent) and Healthcare (down 4 per cent) indices.

“Auto OEMs and auto ancillaries are definite buys at current decade-low valuations. Retail should make a comeback in the coming year, primarily led by a likely attempt by the government to address demand-side issues by the Union Budget,” said Vinay Pandit, Head of Institutional Equities, IndiaNivesh.

In the auto and auto ancillary space, Maharashtra Scooters and Bajaj Auto emerged chart toppers of 2019, delivering 39 per cent and 18 per cent returns, respectively. Varroc Engineering, Force Motors, Minda Corporation, M&M, Jamna Auto, Bosch, Hero MotoCorp and Ashok Leyland destroyed investors wealth, as they cracked 20-42 per cent during this period.

“Metals as a sector signalled an early trend reversal ahead. Globally, copper prices have confirmed an intermediate low and trend reversal in the Shanghai index provides an early signal on inter-market analysis. Hindalco and Tata Steel could see up to 15-20 per cent upside from current levels,” said Manav Chopra, CMT, Head of Equity Research at Indiabulls Ventures.

The 30-share BSE Sensex advanced 15 per cent between January 1 and December 20 this year, while the BSE Midcap and Smallcap indices declined 4 per cent and 9 per cent, respectively.

Among other sectoral indices on BSE, Realty, Consumer Durables indices and Bankex advanced over 20 per cent each. Telecom, IT, TECk, Oil & Gas indices gained 8-13 per cent.

“We find private sector banks, pharmaceuticals and healthcare sectors interesting. Private banks should benefit from lower cost of funds, better asset quality and consolidation in the industry,” said Vikaas Sachdeva, CEO, Emkay Investment Managers.

Sachdeva said domestic pharma companies have settled down after the GST-led inventory disruptions. “Also, we believe the USA generic price erosion seems to be settling down. Going forward, price erosion may not be as pronounced as we saw in the past,” he said.

In the pharma space, shares of Astrazeneca Pharma, Abbott India and Pfizer rallied 50-92 per cent between January 1 and December 20, 2019. Dishman Carbogen Amcis, Wockhardt, Glenmark Pharma slipped over 50 per cent each during the same period.

ICICI Bank (up 51 per cent), Kotak Mahindra Bank (up 35 per cent), AU Small Finance Bank (up 29 per cent) and HDFC Bank (up 22 per cent) were among the top gainers in the private banking space. However, YES Bank, RBL Bank, IDBI Bank and The Karnataka Bank cracked 36-80 per cent.

Sunil Jain, Head of Research, Nirmal Bang Securities, hopes to see a revival in real estate, auto and capital goods sectors. Shares of Prestige Estate Projects, Godrej Properties, Phoenix Mills, DLF and Sunteck Realty gained 20-58 per cent year to date in the real estate space. On the other hand, NBCC, Indiabulls Real Estate and Omaxe declined 25-40 per cent.

“Pharma sector valuations have corrected and the sector is now trading in line with Nifty. Pharma exports are likely to improve from current levels whereas the chemicals sector, especially specialty chemicals, is gaining traction as global majors are looking at domestic companies as additional or alternative to Chinese companies for sourcing,” said Srinivas Rao Ravuri, CIO-Equity, PGIM India Mutual Fund.

He is betting on pharma, chemicals and utilities for 2020.

Among chemicals stocks, Fine Organic Industries jumped 65 per cent during the year gone by. It was followed by Deepak Nitrite (up 61 per cent), Navin Fluorine (up 40 per cent) and Pidilite Industries (up 24 per cent). However, Himadri Chemicals, Nocil, SH Kelkar, Gujarat Alkalies and Jubilant Life slipped between 25-57 per cent.

Most analysts are bullish on private sector lenders. “We have been positive on private sector financials due to their relatively stronger credit growth and asset quality (than PSU counterparts). Also, banks will be among the biggest beneficiaries of the corporate tax cut,” said Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance.

Suhas Harinarayanan, Head of Institutional Equity Research at JM Financial Institutional Securities said, “Financials and pharma should do well.”

Ajit Mishra, VP for Research at Religare Broking, believes companies in the banking and NBFC segments have shown signs of improvement with regard to assets quality, declining NPA as well as slippages. In addition, measures taken by the government and RBI to lower interest rates, cut corporate tax, ease FDI norms, lower GST rates and recapitalise PSU banks are definitely positives for the sector.

“We would be selective in this sector and stick to large private banks owing to better asset quality, consistent financial performance and good market share gains,” Mishra said.