Which sectors will lead the market comeback? Mayuresh Joshi weighs in

As markets attempt to rebound from a sharp correction, Mayuresh Joshi, Head of Equity Research at William O’Neil India, believes that the recovery will be highly selective, with rural-focused sectors, hospitals, and select banks likely leading the charge. In an interaction with ET Now, Joshi outlined his views on sector rotation, pointing out that historical market recoveries have often been driven by unexpected leaders.

"The whole sense is that it is going to be very-very selective as far as the broader markets are concerned, and you are absolutely right if you probably track the NSE 500 companies, after 2015, the COVID crash, and the 2022 crash as well, only 10% of the stocks are trading above the 200-day simple moving average and therefore if you are probably looking at the large part of the broader markets being butchered, that is the right way to probably put it," Joshi stated.

While acknowledging the widespread decline across mid and small-cap stocks, he highlighted that earnings performance will be a key driver of recovery, with certain pockets showing resilience. According to sector rotation data from Panaray, his firm’s market tracking software, agrochemicals, rural themes, and hospitals are emerging as potential early winners.

"Specific pockets, pockets like agrochemicals/rural themes are something that are thrown up in our sector rotation software, Panaray. You have also probably got hospital stocks, which are coming up, where the earnings have been pretty reasonable so far and therefore, I think expectations in terms of earnings will for the large part of this pool," he explained.

Elaborating on rural-driven stocks, he pointed out that fertilizer companies and tractor manufacturers have posted strong sales numbers in January and February, making them attractive candidates for a rebound.

"Whether it is agrochemical companies, some select fertiliser companies, you have seen tractor makers pose decent numbers as far as the February or the January sales are concerned as well. And therefore, rural themes should come back. Hospitals as a space should continue doing well," Joshi added.

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In the banking sector, he believes that select names could outperform, with a renewed focus on Kotak Mahindra Bank as a potential leader in the next uptrend.

"Among the mega themes, my own sense is that banks selectively should continue doing well. Again, historically, what we have probably seen is that after such a huge lull and a correction and a downfall in the markets that we probably got, the next rally that comes through and the sector that leads the rally, it might be a totally different stock leading the rally as far as banks are concerned," he noted.

His top banking pick remains Kotak Mahindra Bank, citing stable NIMs, cost-to-income ratios, and an improving asset quality outlook.

"We have got our eyes focused on Kotak Bank, particularly within the largecap names where our belief is the numbers in Q3 have been reasonably better, the expectation in terms of slippages might continue in Q4, specifically on the microfinance book, which is 8,000 odd crores of the total book of Kotak Bank, but that should largely get compensated in terms of asset quality pressures coming up in the retail book," he explained.

Joshi also pointed out that the integration of the Standard Chartered portfolio and a potential recovery in CASA deposits could further support Kotak Bank’s return ratios.

"Cost to income ratios remaining stable. NIMs have remained extremely stable at 4.93 odd percent and therefore, with the addition of the Standard Chartered book as well, the expectations in terms of some element of back of CASA along with improvement in NIMs as well, along with moderation in overall slippages and cost to income ratios, should augur well for return ratios," he added.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)