Sectoral mutual funds have performed admirably over the past three years. Think about this: since January 2021, PSU funds have given investors an annualized return of more than 45% on average. In a similar vein, infrastructure funding has soared, with an annual growth of over 33% during the same time. Now, the question is which sectors are likely to provide investors with significant returns in the future, and will the sectoral funds' consistent outperformance continue?
Vrijesh Kasera, Fund Manager of Mirae Asset Investment Managers (India), stated in a conversation with Business Today that strong performance is anticipated in the banking, pharmaceutical, and housing sectors. The banking industry is experiencing a cyclical upturn, which is being bolstered by positive developments in asset quality and loan growth. This upturn is expected to continue as long as values remain fair when compared to the long-term average.
Different pharmaceutical industry categories are anticipated to perform well due to robust home markets, cost optimisation, and quality advantages in international markets. After COVID, we anticipate a rise in healthcare spending, and the majority of the challenges facing the pharmaceutical industry have mostly passed. With retail sales at an eight-year high and residential inventory levels at a decade-low, the housing or real estate sector is another one experiencing a cyclical upturn fueled by strong demand. For a longer time horizon, investors should think about these funds, according to Kasera.
Value Research's data revealed that, on average, investors received an annualized return from pharma funds of around 17%. Conversely, within the same time frame, banking funds saw a 15.12% rise. Anish Tawakley, ICICI Prudential AMC's Deputy CIO-Equity, favors domestic cyclical industries that are predicted to undergo a big swing during a recovery. These consist of businesses that deal with cement, cars, insurance, industrial and capital goods, and asset management.
However, Mihir Vora-CIO Trust MF thinks that the local economy would outperform the world economy. He therefore favours industries that stand to gain from local consumption and investment. The construction of physical assets for manufacturing, real estate, and infrastructure is the overarching topic.
Vora went on to say that the government will keep investing in infrastructure at a reasonable rate, which should be supported by an increase in the cycle of private sector investment. Thus, industries such as capital goods, building, utilities, infrastructure assets, power, renewable energy, defence, and railroads are included. We are searching for indications of recovery in the discretionary markets of automotive, paint, and retailing," he stated.
Investors were urged by Chandraprakash Padiyar, Senior Fund Manager at Tata Mutual Funds, to deploy a significant portion of their money to diversified funds such as Large & Mid Cap Funds, Flexicap Funds, and Multicap Funds. He recommended sectoral investors to look at the manufacturing, banking, housing (including real estate), and infrastructure sectors over the next two to three years, as they are the ones with superior risk-reward ratios at the time. The potential for steady earnings growth, scalability, and fair value that these industries provide are the main factors, according to Padiyar.
Speaking about PSUs, Padiyar continued, "Given the history of poor earnings and balance sheets, the sector used to trade as value stocks." Because of the significant improvement in balance sheets and earnings over the last few years, stock values are now trading at significantly higher levels. Regarding prospective developments, we think that the majority of PSU equities are now trading at a premium compared to their private counterparts and even to their own historical long-term valuation ranges. Going forward, one must be extremely selective for future possibilities," he stated.
