Morgan Stanley says, "This India is different from what it was in 2013. In a short span of 10 years, India has gained positions in the world order with significant positive consequences for the macro and market outlook."

India's Q4FY23 GDP numbers surprised many, coming at 6.1 per cent. Street had expected a growth of 5.5 per cent during the quarter. The growth in the FY23 fiscal was better than expected at 7.2 per cent.

The country's tax collection remains robust; GST revenues in May 2023 also exceeded expectations, coming at ₹1,57,090 crore.

Besides, India's manufacturing activity hit a 31-month high. According to S&P Global's India Manufacturing Purchasing Managers' Index (PMI), India's manufacturing sector rose from 57.2 in April to 58.7 in May, indicating the most robust improvement in the health of the sector since October 2020 or a 31-month high, reported news agency ANI on June 1.

Many rating agencies have gone for an upward revision of India's growth outlook for the financial year 2024, citing the country remains one of the brightest spots in the world.

Market benchmarks the Sensex and the Nifty are merely two per cent away from their all-time high levels. Analysts believe it is just a matter of time before they hit the highs. While the undertone of the market appears positive and the long-term prospects look strong, analysts believe investors should consider select sectors to maximise their gains.

Some sectors such as banking, automobiles and infrastructure look poised for healthy gains in the next one-two year. Mint talked to several analysts to find out which sectors they are betting on at this juncture to reap good profits in the next one-two year. Here's what they said:

Vinod Nair, Head of Research, Geojit Financial Services

The Indian stock market is currently neither expensive nor cheap, and it is hovering under the threat of a global meltdown.

India's valuation is expanding ahead of the long-term average while broad earnings forecasts are being downgraded due to mixed Q4 results. Hence, investors need to focus on the safety of capital, value buying and stock and sector-specific future theme.

The companies that are most likely to benefit from the current market conditions are those that have a stable demand outlook and are more oriented towards the domestic market. 

These companies will also have the edge to outperform the market by benefiting from the moderation in commodity prices, by boosting future margins.

Consumption-based businesses such as staples, consumer durables, commercial vehicles, and agriculture are likely to perform well in the current market environment.

In terms of value buys, the sectors that are lucrative on a long-term valuation basis are infrastructure, banks, pharmaceuticals, and power. 

These sectors are trading below the long-term average valuation and enjoy a stable outlook. They are also likely to benefit from local demand and a reduction in the cost of operation.

Swapnil Shah, Director - Research, Stoxbox

From a one-year perspective, we would prefer to play the domestic themes rather than export-oriented ones amid persistent concerns over the global economic outlook and their comparative volatility. Amongst the domestic themes, we are positive about automobiles and the banking sector.

Automobiles: We believe that the automobile sector would continue to benefit from strong demand for passenger vehicles (PVs) evidenced by their robust order book and easing supply chain issues along with expected traction in the commercial vehicle segment, especially considering healthy indicators such as e-way bills, toll collections, IIP growth, and infra activities.

Two-wheelers segment is likely to be the dark horse, with some green shoots in rural recovery and hopes of a normal monsoon season minus El Nino risks. 

Moreover, the easing inflationary pressures are anticipated to translate into lower raw material prices along with benefits of operating leverage expected to drive earnings growth for the sector going forward.

Banking: Though it appears that we are near the peak net interest margins (NIMs), we only expect it to normalize or moderate slightly from hereon. 

The robust credit growth has the legs to continue its journey on the back of an expected 6-6.5 per cent economic growth in India, capex thrust from both the government and private sector players and a revival in broad-based consumption.

With deposits looking a little difficult to garner at this point in time, we prefer banks with higher CASA, larger deposit base, lower opex and higher floating rate loan book. 

Moreover, a cleaner balance sheet compared to a few years ago and a better return profile in terms of return on equity (RoE) and return on assets (RoA) offers us the comfort to continue holding select banking stocks.

Aamar Deo Singh, Head Advisory, Angel One

The pharma sector is one of the sectors that look promising in the coming times, and one can view this sector for opportunities. The other sector to watch out for is FMCG, which has been on a roll for quite some time now. So, any corrections in either of these sectors can be viewed as opportunities to invest from a long-term perspective.

Raj Vyas, Portfolio Manager, TejiMandi

In terms of sectors to bet on at this point, we are seeing opportunities in financials with banking forming the majority of the weightage, manufacturing sectors (ones benefiting from the PLI and Aatmanirbhar Bharat) across large caps and even in mid and small-cap stocks where companies are sector leaders.

Strong growth and return ratios are visible in the March quarter earnings for companies in the aforesaid sectors. And now, with reasonable valuations, it makes it even more interesting to bet on these sectors.

Apart from this, the infrastructure theme can be seen playing through this year as demand prospects for the industry look good considering traction in government-backed projects, primarily driven by the General Election due in the first half of the calendar year 2024 (H1CY24). This will also have a multiplier effect on the cement sector as well.

To summarize, we have seen good March quarter results, macro numbers are good, the US debt ceiling is done, and corporate earnings have caught up with valuations making Indian equities look rather attractive than premium values as seen a year before. 

So instead of timing the market, staying invested is the only key in Indian Markets as we see higher growth in specific sectors as mentioned above.

Ashish Chaturmohta, Fund Manager- PMS Strategy - Apex, JM Financial Services

We are bullish on the building material space and the banking sector in India.

Building material space: We say this as over the next 18 months, important state elections and the general election will be held which will propel capex spending by both state and central government. 

The installed capacity for cement is close to 575 mtpa with average capacity utilization of 65-66 per cent volume market share of the top five players in FY11 was 42.4 per cent and in FY23-end was close to 57 per cent. 

We expect these companies to add capacities in selected markets to gain further market share and maintain and grow their volume market share. 

Also, as these companies have lean balance sheets and generate good cash flows, so capacity additions will be done through internal cash flows. 

Raw material costs have also subsided and volume growth is positive due to strong demand. Also, EBITDA per ton which suffered in the first half of 2023 is now getting back to normal on the back of the above, we believe cement is a good theme to play for the next 18-24 months.

Banking space: The banking sector is the backbone of the economy. In the past few years, post recapitalization of the PSU banks and NPA write-off in private as well as public banks, the sector is witnessing its best days post-2010. 

India is the world's largest market for Android-based mobile lending apps, accounting for nearly 75-80 per cent of all online lenders worldwide. India currently has over 850 active lending apps. 

The digital payments revolution will trigger massive changes in the way credit is disbursed in India. Debit cards have radically replaced credit cards as the preferred payment mode in India after demonetisation. 

Payments transactions via the UPI (Unified Payments Interface) network surged 82.2 per cent in FY23 to a total of 8,376 crore transactions aggregating ₹139 lakh crore, 65.3 per cent higher compared with FY22, according to data by the National Payments Corporation of India (NPCI). This indicates the bottom-line growth in the economy. 

Further, with the capex spree both from the public and private, the loan disbursements will continue to be on the high end. 

The added advantage with the banking sector lies down to the fact that this time the balance sheet is much stronger and highlights string resilience for the time to come. 

The Indian banking sector witnessed the best-ever profitable year. FY23 has been the most profitable year for the banking sector ever FY23 profits grew by more than 42 per cent year-on-year. As both PSU Banks and private banks, yearly profits were more than rupees one lakh crore each. 

Robust loan growth, NIM improvement, and a decline in credit cost have boosted profits for the sector. We remain positive about the banking sector and expect growth to continue over a period of time.

Deepak Jasani, Head of Retail Research, HDFC Securities

Infra, capital goods and BFSI sectors could be in the limelight ahead of the next elections although there are some concern areas in each of these sectors. 

Infra and capital goods sectors have a large dependence on government spending which is expected to continue in the coming year. 

It could be an added kicker if private capex revives to the extent expected. 

BFSI could benefit from higher credit demand due to growth in the economy and rising formalisation.

Gaurav Bissa, VP, InCred Equities

The Nifty Financial Services index has been in a 19-month consolidation. It is now showing early signs of coming out of this consolidation. 

The index is on the verge of breaking out from the bullish cup and handle pattern on the weekly charts which will be confirmed above 19,700 weekly closing. Once confirmed, this can witness an upside of 10 per cent in two-three months.

The banking space has been very strong in the last few months along with strong outperformance. Among the banking names, PSU banks have started gaining strength. 

The Nifty PSU Bank index witnessed a 10-year breakout from descending trendline pattern on the monthly charts at the end of 2022. After witnessing a swift upside, the index made a breakout retest, resulting in a small bounce back. 

The index now looks poised for a 10-15 per cent upside in the coming months. A close above 4,600 will result in a fresh breakout which can push the index towards previous lifetime high levels.