State elections outcome would set the tone for the market, it would help market participants to gauge the situation for general elections due in 2019, said Hemang Jani, Head - Advisory, Sharekhan, a subsidiary of BNP Paribas, in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: The market has been rangebound after recovering from the 10,000 levels. Where do you see the market heading over the next one year?
A: Although falling crude price is supportive for market; on account of state and general elections outcome, we expect bout of volatility to continue over medium term.
Historically, we have seen equities deliver 12-15 percent CAGR return over larger time frame, hence similar kind of returns are not ruled out. Also, favourable election outcomes could act as a catalyst in enhancing returns.
Q: Do you believe the rupee recovery and fall in crude oil prices is short-lived?
A: It is difficult to take a call as both are dynamic and affected by a lot of factors. But for short term, I believe things are stabilising at current levels.
OPEC meet to be held on December 6 will be major event to watch out for, if output is cut sharply, then it could lead to meaningful bounce in crude price.
Rising crude may lead to rupee depreciation. As of now, the Saudis have already indicated they will cut their production by 5,00,000 barrels per day in December, but if this is from a November level of 11 million barrels per day it is not likely to have meaningful impact.
Q: What is your analysis on the influence of the state elections on the general elections 2019 and in turn, the stock market?
A: State elections outcome would set the tone for the market, it would help market participants to gauge who would be likely out of general elections. So based on outcomes, market would take appropriate direction.
Elections always are make or break event for the market. If one were to go by past data, Indian market has gained on five instances out of eight an year before general elections were held since 1989.
Q: How do you expect the consumption story to play out in light of slowdown in lending to NBFC following the IL&FS debt crisis?
A: We may be witnessing short term liquidity issues, however, many large corporate lenders like ICICI Bank, etc. are looking to fill this gap. So in a couple of quarters, liquidity issues could get resolved.
Q: Is insurance really a multibagger theme?
A: The opportunity size for insurance — both life and general insurance — is very big considering the underpenetrated levels of insurance. We could see many companies in this space which could create decent returns for investor.
One of companies which we prefer in this space is Max Financial Services. Effective cost management with the re-balancing of product mix and further diversification of the distribution channels likely to improve profitability for Max Financial.
Q: What are your top five bets for next one year?
A: Reliance Industries: Return 25%
Reliance JIO reports 11 percent QoQ growth in net profit and retail business continues to post strong growth.
Refining and petrochemical margins are expected to remain robust over FY2019E-FY2020E. We expect strong traction for digital services business going ahead.
We maintain buy with unchanged price target of Rs 1,465.
Infosys: Return 27%
Its Q2 revenue beat estimates, with constant currency (CC) revenue up 4.2 percent QoQ, led by strong growth in financial services and retail.
EBIT margin remained flat QoQ at 23.7 percent despite rupee tailwinds, owing to higher variable pay and subcontractor costs along with additional investments in digital and localisation.
Higher investments in digital are on cards in second half of FY19 to gain market share of digital spends in the coming years.
We maintain buy rating on Infosys with a price target of Rs 840, given strong deal total contract value signings and improving business visibility.
Mahindra and Mahindra: Return 26%
Volume growth momentum is expected to sustain; we expect double digit growth trend to continue in FY2020.
New launches in utility vehicle segment are expected to drive growth.
Steep correction provides good entry point. We retain buy recommendation with price target of Rs 975. M&M is preferred pick in automotive space.
Britannia Industries: Return 20%
For Britannia, Q2FY2019 was yet another quarter of strong operating performance; revenue grew by around 13 percent, largely led by rise in sales volumes. Operating profit margin rose around 100 bps to 15.8 percent, even though advertisement cost rose by more than 20 percent.
Innovation in core categories of biscuits, bakery and dairy products; expansion of distribution network and a larger international presence remain key growth drivers.
Volumes are set to grow by 8-10 percent in the near term• The company is well-protected from a rise in input prices; operating efficiencies would continue to drive margins (targeted cost saving of Rs 225 crore for FY2019).
Britannia remains one of our top picks in the FMCG space; we maintain buy with a price target of Rs 3,630.
HDFC Bank: Return 16%
Capital raising, strong CASA traction helped NIMs increase of 10bps on a sequential basis, strong retail base is expected to help sustain it.
Overall asset quality picture sanguine, with risks well priced in.
We maintain our buy rating on HDFC Bank with a price target of Rs 2,470.
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