We believe that the correction in NBFCs reflects the change in sector dynamics. Namely, the cost of funding for NBFC firms has risen, which will impact their margins, says Vivek Ranjan Misra, Head of Fundamental Research, Karvy Stock Broking
The outlook for the Indian economy is good and our target for Sensex for 2018 is 37,500 which translates into an upside of 2.7 percent from current levels over the next three months, Vivek Ranjan Misra, Head of Fundamental Research, Karvy Stock Broking, said in an interview with Moneycontrol’s Kshitij Anand.
Q. Do you think we are on the verge of another financial crisis thanks to IL&FS defaults which has shaken confidence of everyone?
A. We believe that while Indian assets, especially credit markets will be under pressure, but we believe that a financial crisis is unlikely. Recent actions by the government and the Reserve Bank of India (RBI) lend credence to the view that the impact of the IL&FS events can be contained.
Q. What are your views on NBFCs? Do you think the golden run they enjoyed earlier is now over? Any NBFCs which you think are still good buys on dips.
A. We believe that the correction in NBFCs reflects the change in sector dynamics. Namely, the cost of funding for NBFC firms has risen, which will impact their margins.
This, coupled with high valuation premiums commanded by NBFC stocks, clouds the outlook. While NBFC which have a competitive edge in terms of market reach may do well, but the ones having no niche over banks may witness more downside.
Q. Top five ideas which you think investors can buy now for multibagger returns in the next 1-2 years?
Q. Most global brokerage firms do not see much upside in Indian markets in the next 6-12 months. What is your view?
A. We believe that the overall outlook for the Indian economy is good. The economic growth is picking up, also the rate of capital formation is likely to be strong. A higher rate of capital formation is good for equities.
However, the market faces headwinds on account of 1) high valuations 2) likely rise in interest rates 3) higher oil prices. Overall, we believe that in the balance, markets will grind higher, though the rate of return expectations need to be tempered somewhat.
Our target for Sensex for the end of the calendar year 2018 is 37,500 which translates into an upside of 2.7 percent from current levels over the next three months.
Q. How should investors read into challenging macros which have gone from good, bad and now to slightly worse?
A. While it is true that the macro outlook has deteriorated over the last three months, but the overall outlook still looks good.
International Monetary Fund expects that the Indian economy will grow at a rate of 7.3 percent in FY19 after accounting for higher oil prices and higher rates.
The expected current account deficit of 2.5 percent is manageable. Also, we believe that the impact of rupee depreciation on inflation warrants higher interest rates by the RBI. We have penciled in a hike of 50 bps by RBI, of which we expect 25 bps on October 5. But this still doesn’t take away the overall positive macro outlook.
Q. Do you think we are heading for triple-digit level with respect to crude oil? And, if that happens, will market erase gains made in 2018?
A. In the current market environment, crude oil in triple digits is a possibility. If this were to happen, there would be a further deterioration in the CAD, inflation and growth outlook and this will be a downside risk to equity markets in the short term.
Looking out further over a year, we believe that the positive environment for growth and corporate earnings will support markets and equities will be higher over the next twelve months.
Q. What should investors be buying at current levels after some 2000-points slide seen in S&P BSE Sensex and double-digit cut seen in the small & midcap space?
A. On an aggregate, we currently favour large-caps over mid-caps. However, there are some interesting mid-cap opportunities which investors should consider with a 12-month view.
Q. How is October likely to pan out for investors? 10 years data suggest that 50 percent of the time bulls maintained their hold on markets. Sensex fell the most in 2008 when it tanked 25 percent, followed by 7 percent fall in 2009 and 2 percent fall in 2010. It rose 5 percent in 2017, and 8 percent in 2013.
A. We expect that corporate earnings growth to be good over the rest of the fiscal year 2018-19. The earnings season over October- November should be broadly supportive of markets. Expectations of upcoming state elections are a risk to equity markets.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India's leading expert on wealth building, has created a strategy which makes it possible... in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.