Investors Tap Real Estate, Pharma Amid Domestic Economy Focus in H1

Investors Shift Focus to Realty and Pharma Amid Economic Optimism

As geopolitical tensions persist, Indian investors are increasingly turning their attention to sectors that align with domestic economic growth.

Sector Performance Highlights

Data from ACE Equity reveals that the Nifty Realty, Nifty India Defence, Nifty Pharma, and Nifty Healthcare indexes have surged by as much as 30% in H1-FY27. The Nifty Metal index also performed well, gaining nearly 14%. This performance underscores a significant shift in investor sentiment towards sectors that are closely tied to the domestic economy.

According to G Chokkalingam, founder and head of research at Equinomics Research, the strong performance of these sectors can be attributed to a combination of factors, including a government push for local defence production and sustained growth in pharmaceutical exports. “The nature of metals as import substitutes, along with the depreciation of the rupee, has also contributed to improved realizations in that sector,” he noted.

Challenges for Underperforming Sectors

In contrast, sectors such as public sector undertakings (PSUs), information technology (IT), and fast-moving consumer goods (FMCG) have lagged, with the Nifty CPSE, Nifty IT, and Nifty FMCG indexes slipping by up to 10% during the same period. Analysts attribute this underperformance to various factors, including a lack of robust demand and external pressures.

Anirudh Garg, partner and fund manager at INVasset PMS, highlighted that the conversion of order books into revenue in the defence sector, buoyed by a ₹7.85 trillion budget, has significantly lifted sentiment. “Realty and media sectors benefited from rate-cut expectations and a low base effect,” he added.

Outlook for the Second Half

Looking ahead, analysts recommend that investors continue to focus on domestic economy-centric sectors, although caution is warranted due to ongoing geopolitical uncertainties. Most sectors that performed well in H1, with the exception of realty and metals, are expected to maintain their momentum in H2, driven by favorable demand conditions.

However, Chokkalingam cautioned that growth in the real estate sector may slow due to rising land costs and inflationary pressures on construction. “Interest rates may also rise, which could dampen demand in the realty sector,” he warned.

Investment Strategies Amid Uncertainty

Morgan Stanley analysts favor domestic cyclicals over defensives and externally facing sectors, citing external risks such as geopolitical tensions and a slowing global economy. They remain overweight on financials, consumer discretionary, and industrial sectors while advising caution in energy, materials, utilities, and healthcare.

Garg echoed this sentiment, recommending that investors be selective in their choices for the remainder of FY27. He advised against sectors like IT, auto, and consumption, while highlighting that pharma and metals possess earnings resilience that could withstand potential rate shocks.

Key Highlights

• Nifty Realty, Defence, Pharma, and Healthcare indexes gained up to 30% in H1-FY27.
• Nifty Metal index surged nearly 14%, driven by domestic manufacturing focus.
• PSU, IT, and FMCG sectors lagged, with declines of up to 10%.
• Analysts recommend focusing on domestic economy-centric sectors moving forward.
• Potential challenges for realty due to rising costs and interest rates.
• Investment strategies suggest caution in IT, auto, and consumption sectors.

Investor Note: Investors should remain vigilant and selective in their investments, particularly in sectors like pharma and metals that show resilience against economic fluctuations, while being cautious of potential risks in real estate and other lagging sectors.