Manifest Wealth's Sector Themes for Diwali'23
What sectors basis valuations make the most sense for this Diwali?
Hi,
In between the sweets, the boatload of Diwali wishes, great food, warm homes and the love of family, there’s one thing that market participants also have: Muhurat Session
Now, we will make this quick so that we can all return to our families.
Let’s see which sectors are undervalued
Setting the context
The view here is purely basis which metric:
Price to earnings, Price to book and Dividend Yield has the most absolute correlation (positive or negative) and if it’s above 0.7
Then where it lies (Above mean, Above SD +1, Below Mean, Below SD -1)
On average how has the cumulative forward return for 252 days has been
Robustness here would mean if the correlation is strong, ideally, if the correlation isn’t strong, I’d be more cautious, seeing as it means the relationship there can be spurious.
We did this activity for 11 Sectors / Indices:
Oil and Gas
Metal
Pharma
Private Banks
Infrastructure
Healthcare
FMCG
Consumer Durables
Auto
IT
Realty
As this is an occasion, we’d be focusing only on the positives, although from next qtr, I’d cover them in more detail.
Summary
Basis the above process, Oil and Gas, Metal, Pharma, Private banks, Infrastructure and healthcare, all are trading at discount to historic valuations with Oil and Gas being the most away from its mean.
However, as far as robustness goes, only NIFTY private banks has high robustness, in this list, at -0.85 (inverse relationship with Price to book, i.e, lower price to book = higher returns and vice versa).
For us, the robustness would matter more, so Private Banks is certainly a theme that looks good (Disc. invested), the second highest correlation is with Pharma, which also seems to be placed well and is away from the market sentiment.
Oil and Gas seems to be the most away from it’s mean so certainly looked intriguing and something I’d look into.
While I love metals and am exposed currently into steel (might cover on this soon), overall metals does have low robustness so won’t be that keen.
So overall, in terms of confidence, I’d rank my top 3 themes as follows:
NIFTY Private Banks
NIFTY Oil and Gas
NIFTY Pharma
and an honourable mention of NIFTY Metal.
Well, that’s it. - Do find the valuation & scatter plot charts in the appendix below which can shed more light on the process, as always, this is just one data point, so please do read up more and let’s this just be a starting point.
A very Happy Diwali and may it bring prosperity and health to you, and you get all that you want, deserve and more.
Until next time, keep manifesting wealth.
Disclaimer 1: All above views are purely for educational purposes and are not to be taken as investment advice. Investment or trades taken of any kind based on this are solely the person’s risk and I bear no liability. Please consult a financial advisor before making any investments. All investments are subject to market risks.
Disclaimer 2: The views presented above are mine and not of any organization(s) I work with / am employed at
Disclosure 1: I might be exposed to some or all the themes mentioned above, please do consider everything here as biased.
Sources:
NIFTY Indices
Appendix