Possible Safe-Haven sectors in NIFTY!

Last updated: 07 May, 2020 | 12:35 pm

Possible Safe-Haven sectors in NIFTY!

Pharma, IT & FMCG are the Safe Heaven sectors many investors have their eyes on. The liquidity crunch in the economy has stressed the banking sector, this has opened up opportunities for investors to diversify in various other sectors that are well placed to recover once business activity resumes.

Why Pharma has more to gain from this?

  • Given the global supply chain disruption due to the coronavirus, it is a good opportunity for Indian pharma companies to fill the gap in the world market.
  • India is currently the largest manufacturer of generic drugs in the world. A UBS report last month indicated that India is the next top destination for manufacturing after China. This is supported by FDI growing to $16.2 Billion in the last few years, in the pharma sector.
  • NIFTY is down -23.6% YTD whereas NIFTY Pharma is up 16.3% YTD as shown by the chart above.

Why IT has done relatively well?

  • IT is an export-based sector. Indian IT companies have been the top exporters for the country. They are expected to generate total revenues of $191 billion during FY20 indicating that the demand for tech spending has been stable despite an economic slowdown according to a NASSCOM report.
  • The IT sector is well set to see some tailwinds as the rupee depreciates against the dollar.
  • The importance of digital services has been highlighted amidst the lockdown with applications in scale aiming to complete day-to-day tasks remotely. This trend will accelerate post the lockdown, positively impacting the tech sector.
  • NIFTY is down -23.6% YTD whereas NIFTY IT is down -14.3% YTD as shown by the chart above.

Why FMCG is well placed to recover?

  • Consumer staples are necessary even during bad times, along with healthcare and pharma.
  • Despite fall in volumes since January mainly attributed towards the lockdown, the easing of restriction and approaching monsoon season will help increase sales for the sector. 
  • IMD has predicted a good monsoon for India, which will translate to an increase in disposable income among farmers. There is a possibility that demand could increase at the rural level. 
  • Morgan Stanley analysts are assured that India’s long term fundamental stories in discretionary and consumption are looking strong, and indicated that sector could take the lead in recovery much better than the heavily stressed banking sector.
  • NIFTY is down -23.6% YTD whereas NIFTY IT is down -8.8% YTD as shown by the chart above.

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