Going forward, the market is likely to remain volatile ahead of the Budget. The Budget will be announced on 1 February 2024. As the general elections will be held in May, this will be the Interim Budget and a new Budget will be presented in July.
This Budget is likely to focus on capital, manufacturing push and macro stability. The government’s main emphasis will continue on fostering economic growth through increased capital investment and infrastructure development. Sectors such as manufacturing and renewable energy will receive additional stimulus.
With the Budget in mind, let’s find out between Nifty Realty and Nifty Energy, which sector should investors choose.
First, let’s look at their market performance.
Before the recent correction, earlier this week, the benchmark Nifty crossed a new landmark of 22,000 while the Sensex crossed the 73,000 mark for the first time on January 15.
Nifty Realty also hit a new high of 894.40 on January 15, 2024, rising over 141 percent from its 52-week low of 370.65, hit on March 29, 2023. Meanwhile, Nifty Energy also hit a record high of 35,495.55 on January 11th. rallying 64 percent from its 52-week low of 21,631.10, hit on February 28, 2023.
In the last 1 year, the Nifty Realty index has outperformed the Energy index. The Realty index rose 99 percent in this period against a 32 percent rise in Nifty Energy.
Looking to 2023, both these sectors have outperformed the benchmark Nifty. However, Nifty Realty is the better performing index. The index soared over 70 percent in 2023 against a 42 percent rise in Nifty Energy. In comparison, the benchmark Nifty has gained over 15 percent in this period.
Meanwhile, just in January so far, Nifty Realty has advanced over 10 percent, rising for the 5th consecutive month since September 2023. Between September and January, it jumped over 60 percent.
Meanwhile, Nifty Energy has added more than 3 percent in January so far, extending gains for the third straight month since November 2023. Between November and January, it jumped over 32 percent.
In 2023, both Nifty Realty and Nifty Energy gave positive returns in 8 out of the 12 months.
In the long term (3 years) too, both indices have given multibagger returns. Nifty Realty has risen over 192 percent in the last 3 years while Nifty Energy has jumped 120 percent.
Constituents
Out of the 10 stocks in the Nifty Realty index, all have given positive returns in the last 1 year and also in January 2024 till now. Meanwhile, out of the 10 stocks in the Nifty Energy index, 8 stocks have been in the green in the last 1 year and in January 2024 till date.
In the Nifty Realty index, 5 components gave multibagger returns with Prestige Estates soaring the most, up 190 percent, followed by Sobha, Brigade Enterprises, DLF, and Macrotech Developers, rallying between 101 percent and 135 percent. Meanwhile, Godrej Properties, Phoenix Mills, Oberoi Realty, Indiabulls Real Estate and Sunteck Realty also jumped between 26 percent and 89 percent each.
On the other hand, in the Nifty Energy index, NTPC was the top performing stock, up more than 80 percent in the last year, followed by Indian Oil, Tata Power, GAIL and ONGC, up more than 50 percent each. PowerGrid, BPCL and RIL also added between 22 and 39 percent. However, Adani Green shed nearly 20 percent and Adani Energy Solutions tanked over 61 percent in the last 1 year.
Which sector should investors choose with the budget in mind?
Deepak Jasani, Head of Retail Research, HDFC Securities, likes Nifty Energy over Nifty Realty.
Although there would be some build-up of expectations ahead of the vote because of this, we think that major policy reforms may be delayed to the regular Budget due in June/July 2024. This was also suggested by the FM in December 2023. The vote. in the account could be deprived of any mega announcements or great benefits to people. The government is likely to stay on the fiscal course-correction glide path in the Interim Budget for FY25, avoiding populist spending or stimulus ahead of the summer general election. If not major changes, Sitharaman can certainly consider some simplification of income tax rules. She can raise standard deductions, and basic exemption limits and extend tax benefits to encourage manufacturing, but these may not have any material impact on the deficit.
While sops for two (poor and farmers) out of four castes (according to PM Modi) have already been announced several times, some sops for the other two (women and youth) could be announced with minimal impact on the deficit.
Traditionally infra, materials, finance, FMCG, rail and defense are some sectors that carry expectations ahead of the Budget. But this time as no major political announcements are expected, only limited accumulation can happen in these. Nifty Realty index has risen quite sharply over the past few months and hence may not perform post the Budget. Energy may not see major policy changes either, but since valuation favors this sector, it may turn out a bit around Budget time.
Jyoti Roy, Head of Equity Research, Sanctum Wealth, also favors the Energy sector over Realty.
There has been a significant push by the government on renewables especially solar and wind energy, resulting in a significant increase in the share of renewable energy in the total energy pie. We expect that Budget 2024 will continue to focus on increasing the share of green energy as the government plans to increase the share of green energy from 180 GW at the end of November 2023 to 500 GW by 2030. Therefore, we believe that the electricity sector will continue to outperform in the lead up to the Budget. The real estate (RE) sector has been a major outperformer over the past year as the sector appears to have turned the corner on a decade of pain. The sector is witnessing favorable demand conditions and is also seeing the price environment improve. Most real estate companies have suggested that their launch pipelines are strong and the confidence level among investors is improving. The commercial RE is benefiting from robust trading performance.
We expect that a strong demand impulse for the real estate sector will continue although after the recent growth, some consolidation cannot be ruled out in the sector. While both sectors are expected to do well in the medium to long term, the energy sector may outperform real estate in the run-up to the Union Budget considering the government’s push for increasing share of renewables in India’s energy pie which will be positive for the energy sector . .
Harinder Sahu, Sebi-registered Research Analyst at King Research Academy, also likes Nifty Energy over the Realty space.
I will choose energy over real estate. Last month, there was a good performance in energy. Both energy and real are good stocks to buy. The government could also announce some packages.
On the contrary, Atul Parakh, CEO, Bigul, prefers Nifty Realty over the Energy space for this Budget.
Nifty Realty has high potential as the Budget may announce infrastructure spending, affordable housing and tax benefits for home buyers, thus boosting demand. Companies exposed to affordable housing and government initiatives could react positively. However, indications of interest rates and inflation concerns could dampen sentiment. Nifty Energy has moderate potential as global energy prices remain volatile, and the Budget impact on domestic prices is unclear. Renewable energy production and equipment manufacturing companies can be tracked. Geopolitical tensions and potential subsidy cuts could hurt investor sentiment.
In summary, opinions vary on whether to favor Nifty Energy or Nifty Realty in light of the Budget, with considerations ranging from government policies to sector-specific performance and potential announcements.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Published: 19 Jan 2024, 13:15 IST