Investors in the Indian market seem to cheer the festive rally on frontline indices, as the Nifty surpassed the previous closing high. But, is this rally here to stay or will bears give a strong counter attack?
Deutsche Equities said it was encouraging to see the Diwali cheer in the market and the momentum could well continue.
“Going forward, the direction of this market will shift according to how Q2 earnings will pan out. Right now, it is an interplay between global and domestic factors. While rest of the world is seeing return of economic and earnings growth, in India we are seeing a consolidation of both,” Abhay Laijawala of Deutsche Equities told CNBC-TV18 in an interview, adding that how this dynamic plays out will be critical.
Speaking on the global setup, Laijawala said FIIs are now beginning to look at risk-reward for India in comparison to other emerging markets. Currently, valuations in India are higher than other EMs, he added.
On the earnings expectations, he expects Q2 Nifty earnings to improve to 14 percent after 11 percent fall last year.
“This would be led by globally-oriented sectors such as metals and mining, energy and private banks, among others,” he told the channel, adding that telecom and pharmaceuticals could be the laggards.
Meanwhile, on a global setup, Laijawala highlighted all EMs were witnessing accelerated earnings growth, but not so much in case of India.
Here are some of his views on a sectoral basis
Laijawala believes IT is beginning to look increasingly attractive. “Between BFSI, retail and oil and gas, we have seen strong return of momentum in retail and energy and now we see stabilization in BFSI as well,” he added. Along with this, there is an expectation of normalization of interest rates in the developed world, which will be good for bond yields and banks. So, the IT spending could grow 4-4.5 percent in the current and next year, he added.
Investors could watch for commentaries, deal win pipelines from IT companies. “In FY19, we could see positive surprise, relative to what we saw in last two years and the sector overall has attractive valuations,” he added.
Private Banks and NBFCs
He likes private banks on hopes of continuation of market share gains. It was highlighted that share of PSU banks is set to decline to 60 percent and that transfer of market share will accrue to private banks.
“So, we believe that despite valuations, with earnings growth and growth visibility it is a sector that one should continue to invest,” he said. However, he cautioned that the sector has become among overowned ones and that is one aspect to be considered.
Laijawala is upbeat on metals space on the back of resumption of global growth. He said that US ISMs and Chinese PMI were at multi-year highs and capex growth in the world is accelerating. In fact, he expects the sector to support Nifty earnings this year.For entire interview, watch accompanying video.