Could these 5 sectors top the charts in 2023?

The correction in the first half of the year rattled the nerves of many investors. Many tried to figure out when the stock market will recover. They wanted to know when the next bull market will begin.

But now that the market sentiment has changed, it has caused investors to act in different ways.

Some investors are considering buying stocks in a big way. Some have already taken the plunge. Others are cautious and buying stocks selectively and in small amounts. Yet others are keen to invest only if the markets correct again. Some want to buy the best dividend stocks.

Most investors who are either buying stocks now or are thinking of doing so in the near future, have a long-term horizon. This is a good thing. It’s the first step to investing successfully in the market.

But just being a long term investor is not enough. You will also need to identify the best stocks.

If you’re looking for the best stocks for 2023 and beyond, you will need to diligently follow a solid process to find them. And you will also need buy them at reasonable valuations.

In this article, we will look at the 5 big underperformers of this year and how they could shape up next year.

Let’s get started…

Biggest Losers This Year

In your quest to find the best stocks for 2023, it makes sense to look for stocks that didn’t do well.

Look at this chart…

View Full Image

Clearly, software/tech stocks have taken a beating this year. Of course if you had these stocks in your portfolio, then you already knew this.

But there are a few surprises. Did you really expect consumer durable stocks on this list?

But there you go. Numbers don’t lie.

So could these be the sectors to watch out for in 2023? Could the top performing sector for the next year, be one of these? Technology perhaps?

Before we get to that, here’s the list of sectors in terms of index performance for this year to date, in descending order.

View Full Image

⦁ Software/Tech Stocks

During the pandemic and lockdowns, the IT and broader technology sectors, were in spotlight and boomed big time. This was due to the increasing importance of working from home.

However, things have changed quickly… and how!

TheIT sector, one of the strongest sectors in the country, is now under pressure due to recent global crisis and fears of arecession.

So far this year, theNasdaq Composite index, which has the big tech stocks like Amazon, Tesla, Google, among others, has slipped by more than 28%.

Indian IT stocks are also facing high attrition as employees are leaving in large numbers for better opportunities.

In the final quarter of financial year 2021-22, most Indian IT companies reported an employee attrition rate of more than 20%.

But what if attrition settles down next year?

Well, that would be a big positive for IT stocks, especially if the recession in the US doesn’t turn out to be as bad as expected.

In that scenario, revenue and profit growth might hold up well. And these stocks could rebound.

Watch this space…

The same is true for the new age tech stocks like Zomato and Nykaa. If the fundamentals of these businesses improve, we could see a rebound.

View Full Image

⦁ Pharma

Can pharma stocks rebound in 2023?

It’s possible. After all, they have taken a beating this year.

But there are strong fundamental reasons why pharma stocks are good investments…both in the short term and long term.

According to industry estimates,the Indian pharma industryis expected to grow to US$130 billion ( ₹10.6 trillion) by 2030.

In the coming decade, India could potentially become the leading provider of medicines across the globe as the country enjoys the benefit of low cost of manufacturing pharma products.

Other than the cost benefit, the onset of the pandemic triggered a massive growth journey for the Indian pharma sector. The demand for medicines, healthcare equipment, and related products increased exponentially over the coronavirus years. Earnings oftop pharma companiesboomed.

First, pharma companies strategically developed global alliances with multinational pharmaceutical businesses. This gave them better access to crucial drugs or new treatments.

Second, additional opportunities for the sector emerged through governmental collaborations and private players combining forces in the development of vaccines.

Overall, the pharma sector has a proven track record of offering stability, value, and consistent returns to investors.

In the last decade, theBSE healthcare indexhas risen at a compounded annual growth rate (CAGR) of 12% whereas the Nifty pharma has returned approximately 10.9%.

So don’t write of the pharma sector yet, dear reader. As long as you have invested in the fundamentally strong companies in this sector, you should do well in 2023 and beyond.

⦁ Consumer Durables

The sector was plagued with issues like soaring commodity prices and weak demand.

Exports were also hit due to the slowdown in the developed economies.

But things are looking up for this sector. It’s clear that domestic demand has not fallen significantly due to covid.

Also commodity prices have begun falling in earnest in the international markets. This will help these firms maintain their margins.

The correction may have been overdone in these stocks, some of which are very high quality.

Keep them in your 2023 watchlist.

⦁ Real Estate

It’s a difficult time for the industry. High inflation and high interest rates have put a damper on demand in the short term.

But the long term looks bright for this sector.

One needs to only look to China’s massive real estate boom despite its rapidly declining population growth to understand the potential in India.

As our population grows older and richer, demand for good quality real estate will only increase.

Companies that provide good quality housing at reasonable rates and deliver projects on time will see their stock prices appreciate.

Investors looking for solid gains in 2023 and beyond should closely track this space.

Disclaimer:This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com