Although the second wave of COVID is much worse than the first one but if there is any lesson that investors can take from the first wave, it has to be – ‘stay invested’ in equity markets and diversify your portfolio.
Investors can take guard and increase allocation towards sectors that could benefit the most from COVID-19 or could see pent-up demand as and when the situation stabilizes.
If you have a longer time horizon then majority of your portfolio should be skewed towards equity markets. The Nifty index has almost doubled since March last year when the government imposed the first lockdown.
Investors are seeing the second wave as a short-term phenomenon and going by last years’ experience not many investors are tempted to sell, but it is important as to where investors park their money.
It will not be possible to make a portfolio that is entirely COVID-proof but investors can look at investing money in sectors that will be less impacted in case the situation worsens in the near term.
Extended lockdown in various parts of the country could hit consumer durable, real estate, auto, retail, aviation, hotels, banks (NPA risk), NBFCs, Infra, construction could be worst impacted by the COVID wave. Hence, the allocation should be minimum towards these sectors.
Analysts are more gung-ho on export-oriented sectors like IT services, pharma. Additionally, specialty chemicals, agro chemicals, insurance, metals (bull cycle), tractors, and telecom sectors are expected to remain resilient in the near future as well as long term.
“The allocation should include names from pharma, chemicals, and commodities. Many commodities are witnessing tailwinds from rising international prices and higher export demand,” Divam Sharma, Co-founder at Green Portfolio Services said.
“Pharma and Chemicals are benefitting from volume growth and margins expansion,” he added.
The key learning from the first wave was that some sectors witnessed pent-up demand and that could also be seen post the second wave, say experts.
“From a short-term point of view if investors wish to protect their gains and invested capital then they may have retained exposure to defensive sectors like IT, Pharma, and FMCG. However, if the objective is to make higher returns in the next 2-3 years then one needs to accumulate stocks of sectors that are the worst hit,” says Oza.
We have collated 2 portfolio options from experts on how one could make a COVID-proof portfolio:
Expert: Gaurav Garg, Head of Research at CapitalVia Global Research Limited
Until now for this financial year, we have seen clear out-performance in metal, specialty chemical stocks, sugar and pharma stocks.
However, we have seen much traction in metal and sugar counters, but I believe there is still enough room for pharma stocks.
The under-performance of pharma stocks since last 4-5 years came to an end, now we can witness upside of 15-20% from current levels. Insurance and technology stocks might also do well as they met expected numbers in Q4FY21.
We have some worries for the sectors which include Automobiles, Financial Services, and real estate counters, but we are not much bearish over these sectors. This growth for these sectors might halt for the next couple of months at least.
Commodity cycle has turned up and we have seen strong traction in metals and commodities which includes sugar, coffee, textile etc.
Expert: Dinesh Rohira – Founder, CEO – 5nance.com
We have seen a sectoral rotation with funds moving from defensive to cyclical sectors on recovery hopes, and reserved the trend when the market turned choppy.
Nevertheless, there are multiple factors that have triggered a momentum in specific sectors in recent periods. The macro data has been favorable with export seeing a 3-digit growth rate coupled with the highest GST collection in April 2021.
The normal monsoon which is expected to be above average for the 3-straight years will be positive for the overall economy. The RBI’s support for the Pharma industry related to Covid activities will keep industry in a positive trajectory.
The price hike in commodity prices including the metal has led by a strong rally in the Metal index in recent periods as it clocked a 24% gain in April month alone.
Disclaimer: The views and investment tips expressed by the expert on Moneycontrol.com are his own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
