Profit-taking in consumption sectors won't end GST rally: Analysts

Mumbai: A round of profit-taking in consumption-oriented sectors on Thursday may not signal the end of the rally that began after the Prime Minister first hinted at Goods and Services (GST) cuts in his Independence Day speech on August 15. Analysts say the rally in autos, consumer durables, FMCG and metals still has legs, though they caution that gains from here may not be one-sided and would be more stock-driven.Among sector indices, the Nifty Auto index ended 0.9% higher after gaining as much as 3.7% earlier on Thursday. Nifty FMCG gained 0.2%, while Consumer Durables ended almost flat. These indices had gained between 2.4% and 3.2% in the past week."The profit booking observed in GST-exempt sectors on Thursday was largely anticipated and does not signify the end of the rally in this space," said Amit Khurana, head of equities at Dolat Capital Market. "In our view, cash-based buying is likely to resume at lower levels, with increased participation expected from many retail and HNI investors who have, until now, remained underexposed to this segment."The final GST announcement late on Wednesday is aimed at boosting consumption in the run-up to the festive season.Ankit Soni, assistant vice president of fundamental research at Mirae Asset Sharekhan, said Thursday's profit taking reflected investor caution over how companies will manage existing inventories ahead of the new GST implementation deadline."This will be a key monitorable, particularly in sectors like automobiles and cement, where dealer communication from management will play a critical role," he said. Analysts are awaiting the management commentary over the coming weeks, especially around the availability of lower-GST products after the implementation of the cuts on September 22 and updates on footfalls and production expansion plans in response to rising demand.Top PicksAnalysts said any rally in these stocks is unlikely to be a straight line."While the space may see some cool-off in the near term, sectors directly benefiting from the tax cuts such as automobiles, consumer durables, and FMCG are likely to see increased investor interest with the upcoming festive season," said Soni. "It is expected to drive stronger consumer demand, especially when compared to relatively inelastic sectors like metals or cement."He prefers Blue Star and Amber Enterprises among EMS players, Hindustan Unilever, Dabur India and Parag Milk Foods in FMCG space and M&M in autos. Gaurav Sharma, head of research at Globe Capital Market said Voltas, Bluestar and Amber Enterprises in white goods, Hero MotoCorp and M&M in automobiles and UltraTech and Ambuja in cement are his top picks.Analysts said even as traders broadly cut positions in consumer-oriented stock futures and options on Thursday, they retained bullish bets selectively." Long positions remain intact - and in some cases are building - in names like Mahindra & Mahindra, Eicher Motors, DMart, Dabur, and Britannia Industries," said Rajesh Palviya, head of technical and derivatives research at Axis Securities. "We expect these stocks to continue performing better even if the broader market remains subdued over the next few days." he said.

from Economic Times https://ift.tt/nz9uywJ