Investors have been investing in stocks in the realty, defence, pharma, and healthcare sectors in the first half of the current financial year, according to data from ACE Equity. This trend is attributed to ongoing geopolitical developments and a strong domestic demand theme.
During this span, the Nifty Realty, Nifty India Defence, pharma and healthcare indices each climbed up to 30 %. The Nifty Metal index also rose close to 14 %, putting it among the leading gainers.
Domestic Demand Theme
G Chokkalingam, who heads research at Equinomics Research, said that strong domestic demand combined with the government’s effort to source defence goods locally and the ongoing rise in pharmaceutical exports have lifted these sectors.
The renewed focus on domestic manufacturing, the nature of metals as import substitutes, and rupee weakness have also helped the metals sector improve realisations, Chokkalingam added.
Sector Performance
On the other hand, PSU stocks, as represented by the Nifty CPSE index, Nifty IT, and the Nifty FMCG indexes, were among the laggards in the first half of the financial year, slipping up to 10 per cent during this period.
Anirudh Garg, partner and fund manager at INVasset PMS, explained that the transformation of defence order books into sales, with a ₹7.85 trillion budget, disciplined supply in metals, and an exceptionally weak rupee boosting pharma exporters were the main factors that improved sentiment among the top-performing sectors.
Realty and media rode rate-cut hopes and a low base, with earnings leading and multiples following, Garg added.
Outlook for H2
However, realty growth may slow down due to higher land costs and increasing construction costs, Chokkalingam cautioned. Interest rates may also rise, which could impact realty demand.
Garg suggests investors remain selective in the remaining part of the financial year, avoiding IT, auto, and consumption sectors. Pharma and metals have earnings engines that can survive a rate shock, while defence-related stocks can gain depending on execution, not orders.
Chokkalingam expects oil marketing companies to remain under pressure in the second half due to raised oil prices. Agri-related stocks are also expected to see de-growth in year-on-year profit due to poor rainfall and a subsequent decline in the crop sowing area.
Chokkalingam warned that chemical divisions and the paint sector, both reliant on crude-oil feedstocks, are likely to face near-term margin compression, suggesting investors proceed with caution in these areas.
