I have already mentioned about the investment themes in equity market for year 2011; now let’s look at some of the sectors or industries which one should avoid investing during the year 2011 –
1. Banking Sector – With inflation figure in 2 digits and crude price rising banks will have to deal with strict central bank policies and interest rates are expected to rise further, banks will have lower interest rate margins and therefore one should look at this sector when there is a correction or fall in the stock prices of banks.
2. Auto and Auto ancillary Sector – Auto and Auto ancillary Sector companies are at all time highs and India is looked upon as a great market for auto sector, however the share price of these companies have almost become 4 to 5 times what they were during the year 2008, and therefore investing in these companies may not be a good idea as interest rates are rising and in rising interest rate environment auto sector do not perform well and also the risk reward ratio is not in favor of investors when comes to investment in this sector.
3. Real Estate Sector – Recent bribes for loans scandal which involved many real estate companies coupled with rising interest rate of loans will be a big challenge for real estate companies and therefore one should give a miss to this sector until there is more clarity on scam and also interest rate environment becoming favorable.
4. Information technology – IT sector companies have also performed exceptionally over the past 2 years, however it is not necessary that they will repeat that performance next year because if stock markets keep performing well than it will mean more money coming from FII which will lead to currency appreciation and which in turn a negative for these IT sector companies. Another reason which may lead to problem for IT sector companies is the risk that Europe and USA once again go to recession and as most IT sector companies projects come from these region, a slowdown would mean less projects which in turn will result in lower profits for this companies.