Investing in Uncertain Times

In this post, we will be discussing, where a retail investor should keep investing in uncertain times. Investing in uncertain times is very much necessary to create wealth as these are the time where we get good business at cheap valuations.

History has shown that we may never get good business at cheap valuations during good times. That is the key reason to invest in uncertain times.

Nifty PE Valuation Charts

Nifty Hit at 6year lowest PE of 18.4 on 23 March 2020. And as of Today, 01 Jun 2020 Nifty PE stands at 23.42.
Investing in equities using PE multiple is very important as this gives a margin of safety when things go haywire.

Now, let us check the 1 and 3-year performance of various sectors among Nifty.

1 Year Performance of Various Sectors

3 Year Performance of Various Sectors

Nifty Pharma: It has continued to remain in limelight due to increase spending in this sector. Recently, Many pharma companies like Aurpharma have given blockbuster results. In terms of returns, Pharma sector has beaten all records and has been top-performing indices in last 1 year.

Nifty Bank: Banking and finance are some of the worst affected sectors. It should continue showing weakness in the coming time. In terms of returns, -35% is a significant drop in wealth. Financials are the backbone of the economy therefore this sector will slowly recover and should maintain its previous growth.
Recovery in banking sector can take 2-3 years and investors should not look for quick returns in this sector.

Nifty IT: The Indian IT industry has continued to perform well in the last 1-3 years. It is expected that this industry should perform well due to an increase in automation and cost-cutting among different sectors.
Although order visibility might be low from foreign companies for a short duration. A longer-term trend continues to be positive.

Nifty Auto: Auto sector is cyclical and your investment returns are very much dependent when you invest during the cycle. Currently, we are witnessing a sharp decline in sales of auto due to deferred buying in this sector. Due to a significant rise in COVID cases, there could be an opportunity in this sector as an individual will be preferring traveling in own vehicles instead of public transportation.

Nifty FMCG: Essential consumption goods are generally termed as a recession-proof sector and due to which this is the sector that has not performed poorly. Indian FMCG sector should continue to stay in limelight due to good demand from its consumer.

Nifty Reality: Due to the rising acquisition cost of houses, this sector was already seeing a decrease in demand and an increase in inventory among developers. We are expecting this should continue for a while till the developers are ready to offload their inventory by a significant decrease in property prices.

Nifty PSU: This is the biggest wealth destroyer for among all the sectors. The main reason for this carnage is poor corporate governance in all public sector banks. A significant increase in NPAs even after recapitalization has lost trust and value among investors community.
Investors should be very much cautious while investing in any PSU banks as this sector has not performed in the last 10 years also.

Growing Sectors in coming future

FMCG
IT
Pharma (emerging sector)

Sectors which can take 2-3 years to recover

Automobiles
Banking and Finance

Sectors To avoid

Reality Space
Aviation.

References
Craytheon : Nifty PE charts
Bloombergquint: Market data