The increasing adoption of digital services, with work-from-home (WFH) becoming the new normal, has resulted in demand for certain technology and telecom themes. Similarly, an increase in home consumption is spurring stocks of some food companies.

Amid all this, the government has also re-initiated the self-reliance theme through Atma Nirbhar Bharat, driving many stocks in the process. Another theme that has been playing out is the personal mobility theme, which is driving demand for some auto stocks. And, lately, the progress on the development of a vaccine is resulting in a rush towards stocks in sectors such as travel and transport that are expected to benefit the most.

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Rahul Singh, chief investment officer-equities, Tata Mutual Fund, says, “There is a huge shift in consumption patterns, and a lot of it might stay even long after the pandemic. The economic behaviour of firms and individuals has started to change and WFH will remain an important theme.”

As more companies and people adapt to WFH, it’s no surprise that telecom and technology companies figure high among the sought-after stocks.

Technology and data:

When markets started rallying globally by April, the strongest pickup was in stocks of tech firms. In India, one of the top gainers in the past six months was Tata Communications Ltd, which is generally known for its long-distance bandwidth services. It is being seen as a solutions provider that enables managing a scattered workforce. The stock has soared nearly 79% above its pre-covid highs.

In terms of absolute market cap gains, Reliance Industries Ltd has led the league tables, thanks to the flurry of fundraising activity in its telecom and technology arm, Jio Platforms Ltd. Indeed, the ₹1.52 trillion raised by Jio Platforms was partly driven by the tech theme that drove stocks in the sector globally. “The Indian markets have been strongly co-related with the US markets in the past six months, and it has even mimicked some of the themes driving stocks globally such as technology, WFH and, lately, the vaccine trades,” says Nitin Rao, founder of alphaideas.in.

Work-from-home: Stocks of certain food firms such as Tata Consumer Ltd and Britannia Industries Ltd are benefiting from the growth in home consumption. These stocks are up 35% and 17%, respectively, compared to their pre-covid highs. “Consumer sector continues to be the flavour, as a lot of street food and other snacks are being replaced by biscuits and other packaged foods,” said Rajiv Sharma, head of research, SBICAP Securities.

Atmanirbhar: The self-reliance theme has added to stock market frenzy. Stocks of pharma and active pharma ingredient firms, defence-related stocks, and even some manufacturing sector firms could see benefits of the increasing trend to source from countries outside China. The government’s policies aimed at wooing investments in active pharma ingredient (API) sourcing is driving stocks in the pharma and API sector. In addition, policy initiatives aimed at increasing domestic manufacturing in defence has spurred stocks such as Bharat Dynamics. It has also given a boost to firms such as Dixon Tech that are increasingly being looked to for import substitution, in the electronics space.

Besides, investors are betting that the global shift in manufacturing from China could benefit some firms in the sub-continent. Amid the push for self-reliance, the government has set curbs on imports of agro-chemicals, toys, electronics, etc., and has imposed countervailing duties for some products.

Quality: Given all the uncertainty caused by the pandemic, there has also been a flight to quality, with a preference for companies with high cash flow and no debt. As a result, stocks of consumer goods giants such as Nestle India Ltd and Hindustan Unilever Ltd, as well as top IT services firms such as Tata Consultancy Services Ltd and Infosys Ltd have done well.

Personal mobility: This is another theme that has kept auto stocks on high gear. Hence, demand for entry-level cars is expected to be high, investors believe, as people look to avoid public transport. This is keeping the stock of Maruti Suzuki quite buoyant. Besides, two-wheelers stocks such as Hero MotoCorp have jumped as sales of two-wheelers have been relatively better.

Vaccine: In the latest leg of the rally, the vaccine theme has spurred some stocks in the airlines and the hotel sector, just like in the global markets, Rao points out. The hope that several vaccines are in late stages of development and could become available sooner has been like a tonic for travel and tourism stocks. In fact, Russia has already announced a vaccine. InterGlobe Aviation shot up 20% in the last few trading sessions, and so did the Indian Hotels stock. These firms are also shoring up cash buffers to navigate the covid-driven lean period.

With a new theme driving stocks every few weeks, investors need to be careful. “We are seeing fast momentum-based churn. The correlation with fundamentals has to be checked. The market is taking things incrementally month-on-month, but some stocks have risen quite fast,” said Sharma.

“While liquidity and investor sentiments have been strong, fundamentals are patchy. Global negative events can make markets volatile. Current valuations don’t leave much room for negative surprises. One should only pick strong franchises rather than think this liquidity and sentiment will continue,” says Harsha Upadhyaya, chief investment officer-equities, Kotak Mutual Fund.