Top sectors in 2010 for stock market investing

Top sectors in 2010 for stock market investing - 2009 will be remembered as a year that gave phenominal returns to stock market investors. And now coming to 2010, every stock market investor seems to highly euphoric and investing in stocks with high expectations. But its time for a sensible investor to reevaluate his expectations as the current high priced scenario can easily disappoint investors. Gone are the days of undervalued stocks. The Sensex is currently trading at a PE of 22. Sensex historically trades in a PE range of 15 to 16. So the current valuations of most major stocks are overvalued and hence a correction is due. On the other side, the growth story of India Inc seems to be encouraging, so the long term prospects are still good in may sectors.

So lets look at how different sectors might work out in 2010:

Gold: Gold should continue its growth in 2010 due to investors seeking safety in times of higher inflation and dollar loosing its value.
Automobile : Automobiles sector seems to be catching up its lost ground and the sales in the recent quarters of all major auto makers clearly demonstration a turn around in this sector. Demand for automobiles should remain encouraging in 2010 too and auto companies should maintain good growth. Auto ancillary companies will provide better opportunities. Look for stocks like amtek auto.

Banking: This is one of the sectors that is going to show continued growth on the back of growing Indian economy. Banking sector should provide the credit needed for the improving economy. We have already seen credit growth growing exceptionally in November as compared to September. Top picks in this sector are PSU banks such as SBI, Bank of Baroda and Private banks such as Axis Bank and IndusInd Bank. Long term investor should be caustious as these scripts have gone up real quick. So accumulate these in corrections.
Power : Power is a good sector for only long term investors. Only patient long term investors should invest in this sector. In short term, it will not give good returns but over long term, it will give good returns. There is a lot of capital in this sector that is in the process of building new capacity. Lot of capital has been raised recently through various IPOs such as Jindal, Adani, NHPC etc. It takes time for this capital to start producing revenue. One has to wait 3 to 4 years for good returns in this sector.

Oil & Gas: This sector seems to be encouraging in 2010. Oil and Gas prices will continue to go up in 2010 due to falling dollar price. This should work in favor of oil and gas exploration and pipe companies. Green energy stocks such as Praj, Suzlon etc should also perform good due to the increase in oil prices.

Infrastructure: Infrastructure sector start performing from second quarter of 2010 but stocks will have to be chosen carefully. Stocks with good execution capabilities of management and good cash flows will perform better. Infrastructure could underperform for short term.

Engineering & capital goods: As the economy is improving, Engineering and Capital Goods sector should perform well in 2010. There will be demand for engineering services and capital goods due to an increase in infrastructure activities.

Health care & Pharmacy: Health Care and Pharma is a defensive sector and will continue to perform good. This sector may not give phenominal results but this may not disappoint also. This sector is the best best choice for hedging your portfolio.

Cement: Cement sector is not l;ooking good for the short term due to falling cement prices but select stocks provide good opportunities to invest. Stocks related to commonwealth games area will perform better.

Telecom : Due to the fierce compitition and falling margins, the telecom sector should continue to suffer. It could give some short term upsides due to recent undervaluation but its better to stay away for medium to long term.

Mines & Minerals: Because of the increase in demand for raw materials as the economy improves, Mines and Minerals should perform well.

Agriculture: Prospects of this sector depends on monsoon next year and government focus and spending on agriculture in budget.

Information technology: IT seems to one of the sectors that might perform well in 2010. As companies around the world seems to be allocating the IT budgets that were on hold last year, order books will increase but still companies will have tough time showing good profits due to rupee appreciation. However, good midcaps might outperform large caps in 2010.

Metals: Any surge in commodity prices due to falling dollar could lead to a rally in metal stocks. Demand of metals on account of growing economy could also lead to growth

Real estate: Affordable housing sector could dominate Real Estate this year. There is already a lot of Supply, so the growth prospects in this sector seems to be low. Better to stay away from this sector in 2010.

Tourism, Hopitality and Hotels: The commonwealth games might provide a trigger for the growth in this sector. Select stocks in this sector could outperform next year due to surge in tourism and travel activities next year due to commonwealth games