Markets in Red: Which Sectors Are Most Likely to Feel the Pinch

Markets continued their declining streak on Tuesday as bearish sentiment dominated the D-street owing to sell-off pressure. Benchmark indices ended in the red territory, erasing all the gains made during the early trading hours when they were up by nearly 1 per cent.

BSE Sensex closed below 78,600 whereas NSE Nifty ended the day at 23,992, down by nearly 63 points or 0.26 per cent. The PSU Bank index was the worst-performing sector, down by nearly 1.26 per cent. While high valuations and selling sentiment weighed on the markets, a larger drag came from a negative global market mood.

However, as the market continues to ride on volatility, investors are skeptical about which sector to bet on. "Though themes such as power, railways and capital goods are mostly domestic facing, these are likely to be vulnerable due to concerns over their valuation," said Manish Chowdhury, head of research, StoxBox.

Just a few months back, the trajectory of railway stocks outperformed market expectations. However, despite their stellar performance and multibagging returns, there were still concerns about the prevailing momentum.

"We advise investors to cushion themselves by building position in pharmaceutical and FMCG sectors where the business performance has improved recently and is likely to sustain going ahead," Chowdhury added.

On August 5, FMCG sector was among the top-performing sectors even as broader markets declined by more than 2 per cent and bears took charge.

Hindustani Unilever (HUL) was among the top five gainers from the Sensex pack on August 6, signaling a pick-up in the consumer goods segment. Britannia Industries was also up by nearly 2.89 per cent on the Bombay Stock Exchange, closing at Rs 5,865 price level.

Which sector will be the hardest hit by the stock market crash?

High beta sectors like realty, infrastructure and capital goods, which are currently trading at historically high valuations, might see some unwinding said Nishant Srivastava, CEO of Torus Wealth. He pointed out that the pressure is due to mixed company results, a slowdown in domestic order inflows and export weakness across most regions.

Although Nifty Realty witnessed a slight increase even as broader markets continued their downward trajectory. The sector was among the top performers on the stock market alongside IT and FMCG.

"Investors must however be cautious of the overvalued sectors such as small-cap and mid-cap trading at more than 30 P/E ratios and defense at more than 50 P/E ratios. These overheated sectors pose considerable risk in the current volatile market environment until a correction occurs under the new regime," said Amit Goel, co-founder and chief global strategist, Pace 360.

Upcoming US elections, potential reversals in interest rate cuts and improvements in domestic earnings over the next two quarters will be a crucial watch for the D-street, as per analysts.