Predicting the next Bull(s) of Indian equity market
Recently I read a post on LinkedIn of a stock trader. He asked if anyone can predict the bulls of the post Covid-19 stock market in India. I found it extremely intriguing. Not the post but the question. He went on to suggest that the next bull market will not be led by the current bulls as per the historical trends and all the stocks which have taken a beating will never reach their all time highs again. This was quite a bold statement for me. I didn’t understand the hypothesis as he didn’t share any statistical correlation.
I also read another article on the internet which listed out the bulls of markets pre and post a major economic downturn event. Before the dotcom bubble, IT stocks outperformed the markets. Post it, Capital Goods took the crown and ran with it till 2005. From 2005 till 2008, it was handed over to the all mighty Banks and Real Estate. Had to be! Post the Sub Prime lending crisis of 2008, Consumer Goods picked up. In the last 6–7 years, Banks and Auto were the outperforming sectors and Consumer Good saw a steady growth. So what will happen post Covid?
Many analysts have put their money on Healthcare and Insurance. The hypothesis seems logical. For data to back these claims, we will have to wait. I personally think Insurance can surely be an outperformer but I have reservations about Healthcare as 1) It is Capital Intensive 2) Export Dependent 3) India is a laggard in innovation in Healthcare when compared to the Western World. We are good service providers and are also cost effective but we don’t have industry leading innovations in drug formulations and drug delivery. Also, organic medicines and a socialist economy hurt the upside potential in terms of price for most Pharma companies and their domestic sales.
Till now we discussed about the sectors which everyone expects to outperform but what about the traditional heavyweights post Covid? Auto, Banks, Consumer Goods?
I think Banks are here to stay and will continue to outperform as market is getting squeezed and is being consolidated, thanks to the misdeeds of Banking Superstars who ran these banks like the their piggy bank. The same should be true with Consumer Goods but nearly all listed companies are trading at an average of 65x Price to TTM Earnings. How much more value can they add? For Auto, I am not convinced about the story going forward and wouldn’t bet big on this sector post Covid as mobility is expected to be reduced in the short term as we change the way we lead our social and professional lives.
To wrap up, I have simply used data and opinions available in public domain to predict some broad level post Covid market scenarios but it by no means is radical and based on. outliers in data of the present times. If anyone can predict a bull sector post Covid which is radically different from the ones discussed above, that would really be interesting and he or she is surely anticipating a big payday in next 8–10 months!