As government releases Q4 GDP data today, these are economy stocks and sectors to look at
4 min read 31 May 2023, 03:03 PM ISTIndia's economy is expected to grow significantly faster in Q4FY23, led by banking, capital goods, manufacturing, and services sectors, reflecting improved consumption trends. Economy stocks to watch include IRB Infrastructure, Larsen & Toubro, Gail India, Indian Oil Corp, and NTPC.
PremiumOverall, analysts expect India's economy to grow at a moderate pace in the January-March quarter (Q4FY23), both sequentially and year on year, led primarily by the banking, capital goods, manufacturing, and services sectors, reflecting improved consumption trends and an encouraging increase in private investment.
Gross domestic product (GDP) growth was 4.4% in Q3FY23 (October-December), compared to 4% in Q4FY22. Today, the National Statistical Office will release the official print for Q4FY23 and the complete fiscal year FY23.
In its analysis, brokerage Motilal Oswal Financial Services Ltd indicated that it continues to expect that real GDP growth could be around 5% year on year (YoY) in 4QFY23, in line with the government's prediction.
The brokerage in its report stated that there is little doubt that economic activity slowed in February (versus January), though the slowdown was more gradual than projected. At the same time, growth slowed even more in March. As a result, it continues to think that real GDP would rise at around 5% year on year in 4QFY23, as predicted by the government.
India Q4 GDP: Has the market priced in lower growth? How can Q4 GDP print influence market mood?
Analysts highlight certain economy stocks and sectors to consider. Let's have a look at them.
Pankaj Pandey, head of Research at ICICI Securities
Banking remains one of the most significant indicators of overall economic growth, and GDP figures are rising. I believe banking will reflect the overall economic buoyancy, and we have already seen this segment do well in terms of credit growth being in the mid teens, as well as the sector delivering one of the strongest profitability with most of the major indicators in favour. And with the kind of push the government is giving to capital expenditures (capex). As a result, banking remains one of the best sectors for overall economic buoyancy.
All of this will be reflected by the banking industry. As of now, we are seeing that the manufacturing sector is benefiting mostly from lower input prices ranging from oil to a variety of base metals. And I believe that China has not yet recovered as projected, and that government spending on Capex has been at an all-time high. It will all have a favourable impact on many sectors, but if someone has to pick one, it should be banking. Also, while earnings growth is strong and volatility is at an all-time high, values are nowhere near peak levels. However, the multiples are not at their highest.
Siddharth Bhotika, fund manager at ITI Long Short Equity Fund
According to Siddharth Bhotika, fund manager at ITI Long Short Equity Fund, markets are forward looking so older data points do not move markets as such. Future trajectory of growth and inflation and change in expectations of these would result in market adjustments.
Banks, capital goods are still doing great in terms of earnings, near to medium term view also sanguine. On the other hand, there are still clouds on pharma and information technology (IT) space.
"We prefer NBFCs as cost of borrowing has mostly peaked out with April RBI policy pause," added Bhotika.
Vinit Bolinjkar, Head of Research, Ventura Securities
Vinit Bolinjkar, Head of Research, Ventura Securities has suggested the stocks listed below.
IRB Infrastructure – IRB is a leader in BOT/HAM based road projects the company is likely to benefit from a healthy growth in the GDP numbers. Road infrastructure has been a mainstay of the government and with the increasing budgetary allocation towards infrastructure, we are expecting strong project allocation to IRB in the coming years.
Larsen & Toubro – Improving city infrastructure and picking up in the capex cycle is likely to benefit L&T’s EPC business, while Atmanirbhar Bharat drive is likely to improve sourcing of heavy engineering and defence products to enhance revenues in other segments of the company.
Gail India – Aggressive rollout of CGD across India has significantly improved the demand for natural gas transmission pipeline network. Majority of this onus is on Gail India and hence the next 7-8 years will be revenue accretive for the company.
Indian Oil Corp – Rising demand for refined products from India to developed countries is likely to benefit Indian refineries, and being the largest PSU refinery company, IOCL will get the benefit.
NTPC – The company has been improving its renewable energy business over the past couple of years, which could improve its business diversification in the coming years.
Avinash Gorakshakar, Head-Research at Profitmart Securities
Most economy related stocks like auto cement capital goods building products banking real estate and housing are sectors which will benefit from macro tailwinds in the economy.
Hence stocks like Tata Motors, Mahindra & Mahindra, DLF Ltd, Cummins, HDFC, HDFC Bank, Ambuja Cements, and Kajaria should do well ahead.
Why stock market investors should look at auto shares ahead of India's GDP data release?
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