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Prefer cyclical stocks over defensives, says Kotak MF's Harsha Upadhyaya

Updated : April 09, 2021 10:20:41 IST

The Sensex and Nifty ended the week in the red. Financials were the biggest laggards this week with bank Nifty recording its biggest fall in the last eight months. However pharma, IT and metals outperformed.

Harsha Upadhyaya, CIO at Kotak Mutual Fund, believes that markets are confused about the impact of second COVID wave on the economy. However, he expects vaccination and economy to gain momentum over the next couple of months which should help the markets.

"Market is confused at this point of time in terms of impact of second wave of COVID and how that will impact economy. However, earnings is going to be very strong given that we have a favourable base as well we have seen sequential improvement during the January-March quarter. So, the earnings will not really pull down the markets. Overall we believe that over the next couple of months we will see economic momentum coming back and vaccination also gaining momentum and that should help the markets in the medium term."

He prefers cyclical stocks versus defensives like IT. "We are more neutral on IT. The business momentum has improved and margins will also likely hold on but given the kind of surge that we have seen in the IT sector stocks over the last 12-18 months, most of these positives are well discounted. So at this point of time while there is a scare on the coronavirus front, the sector may continue to hold on or may even outperform but from a longer perspective we believe that may be it is time to look at some of the cyclicals where there is headroom for valuation rerating."

Rohit Srivastava, founder & strategist at Indiacharts.com, believes that healthcare and PSU banks could outperform the markets next week.

"For next week there is strength in metals but there could be a correction. However the sectors which are showing fresh momentum are healthcare and public sector banks. While banking as a sector has been weak, the PSU banks have given some momentum turnaround on Friday by holding their weekly moving averages. So possibly they could lead the way for the financials. So these could be the two sectors that we will look for immediate moves from here."

Srivastava expects Cipla, Dr Reddy's, Lupin, Union Bank and Canara Bank to outperform the markets.

"In healthcare we like Cipla, Dr Reddy's and Lupin. While in the PSU stocks we like Union Bank and Canara Bank."

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