Indian stock indexes (such as Nifty 50) are only about 8% below as compared to the pre-COVID high in February. As several new themes have changed the way investors evaluate stocks after the pandemic, several stocks have surpassed their highs earlier this year. 

With the increasing popularity and adoption of digital services, working from home (WFH) has become the new normal, leading to demand for certain technology and telecommunications themes. Similarly, the increase in household consumption has also stimulated the inventory of some food companies.

Amid all this, the government has also restarted the theme of self-reliance through Aatma Nirbhar Bharat, which has promoted the development of many stocks. Another theme that is at play is the theme of personal mobility, which is the driving demand for certain auto stocks. Moreover, recent advances in vaccine development have led to people flocking to sectors such as travel and transportation, which are expected to bring the greatest benefits.

Rahul Singh, Director of Equity Investment at Tata Mutual Fund, said: The consumption patterns have changed dramatically, and many of them may continue for a long time after the pandemic. The economic behavior of companies and individuals has begun to change, and Work From Home (WFH) will remain a significant theme.

As most people and several companies adapt to WFH, it is not surprising that technology and telecommunication companies account for a high percentage of popular stocks.

Data and Technology :

When global markets began to rebound in April, the most effective pickup was in technology company stocks. In India, one of the companies with the highest revenue in the past six months is Tata Communications Limited, which is usually known for its long-distance bandwidth services. It is regarded as a solution provider capable of managing a dispersed workforce. The stock has soared nearly 80% above from the high of its pre-COVID.

In terms of absolute market value growth or cap gains, Reliance Industries Ltd. ranked first due to the surprisingly active fundraising activities in its telecommunications and technology sector, Jio Platforms Ltd. In fact, the 1.52 trillion rupees raised by Jio Platforms were driven by the technology as the theme, that drives the industry’s global inventory. In the past six months, the Indian market has become closely correlated with the US market, even mimicking some of the themes that drive global stock markets, such as technology, WFH, and recent vaccine deals, Nitin Rao, founder of Alphaideas.in said. 

Aatmanirbhar:
The theme of self-reliance has increased the enthusiasm of the stock market. Stocks of pharmaceutical and active pharmaceutical ingredient companies, defense-related stocks, and even some manufacturing sector companies, all can see the benefits of increasing purchases trend from countries outside of China. The government’s policy aimed at wooing and attracting investment in the procurement of active pharmaceutical ingredients (API) is driving inventories in the pharmaceutical and API sectors.

Besides this, policy measures aimed at improving the level of domestic manufacturing in national defence, have stimulated stocks like Bharat Dynamics. This also promotes companies like Dixon Tech, which are increasingly being favored for import substitution in the electronics space.

Also, investors are betting that the global shift in Chinese manufacturing may benefit some companies in the subcontinent. Driven by self-reliance, the government has restricted the import of agricultural chemicals, toys, electronic products, etc., and imposed countervailing duties on certain products.

Work from home:

The stocks of certain food companies (such as Britannia Industries Ltd and Tata Consumer Ltd) are benefiting from the increase in household consumption. Compared with the pre-COVID highs, these stocks are up 36% and 18%, respectively. 

Rajiv Sharma, head of research at SBICAP Securities, said: Consumers continue to become mainstream because many street foods and other snacks are being replaced by bread, biscuits, and other packaged foods.

Quality:

In view of all the uncertainties caused by the pandemic, there is also a flight to quality. Priority is given to companies with high cash flow and no debt. As a result, stocks of consumer goods giants such as Hindustan Unilever Ltd. and Nestlé India Ltd. as well as top IT service companies such as Infosys Ltd. and Tata Consulting Services Ltd. have performed well.

Personal Mobility:

This is another theme that keeps auto inventories growing rapidly. Therefore, investors believe that the demand for entry-level cars will be high as people want to avoid public transportation. This makes Maruti Suzuki’s inventory quite buoyant and active. In addition to this, stocks of two-wheelers such as Hero MotoCorp also rose because of the relatively good sales of two-wheelers.

Vaccines:
Dr. Rao pointed out that in a recent rally, the theme of vaccines has stimulated some stocks in the hotel industry and airlines, just like in the worldwide market. It is hoped that several vaccines are in the late stages of development and will be available in the market soon, just like a tonic and supplements for tourism and travel stocks. In fact, Russia has recently claimed to have a vaccine for coronavirus infection. In the past few trading days, InterGlobe Aviation’s stock price has risen by 20%, and Indian hotel stocks have also risen by 20%. These companies have also increased their cash buffers to cope with the lean period of COVID-19.

With new themes to push the stock up every few weeks, investors need to be cautious. We are seeing a rapid momentum-based churn. There is a need to check the correlation with fundamentals. The market is increasing month by month, but some stocks are growing very fast, Sharma said.

Despite the strong liquidity and investor sentiment, the fundamentals are still uneven or patchy. Negative global events may cause market turbulence. Current valuations will not leave much room for negative surprises. People should only choose strong franchise Management rights, rather than thinking that this liquidity and sentiment will continue, said chief investment officer- equities, Harsha Upadhyaya at Kotak Mutual Fund.