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Last Updated : Apr 11, 2019 11:42 AM IST | Source: Moneycontrol.com

'Change in the political environment could pose challenges for the market'

There has never been dearth of quality and alpha-generating stocks in the market irrespective of cycles. Hence, the investors may still invest in quality stocks

Sunil Shankar Matkar
 
 
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At the current level, the market has priced in most of the positives but good corporate earnings could help the market inch higher. Key concerns will be the sustainability of the FII inflow at current valuations and sustained recovery in corporate earnings. Change in the political environment could pose challenges for our market, said Rajeev Srivastava, Head Retail Broking, Reliance Securities in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpts:

Q: Nifty has rallied from 10,600 to 11,760, how do you position yourself in the market at current levels?

A: The market has rallied based on favourable opinion polls and cut in interest rate. The inflation environment has been quite benign and another round of interest cut cannot be ruled out. We believe the market will focus on corporate earnings as we enter the results season. Banking will continue to be the key focus sector with good credit growth and stable yields.

Q: According to you, what is fueling the ongoing rally?

A: This has largely been a pre-election rally with the expectation that the incumbent government will retain power. Further, conducive FII inflow mainly in the form of ETFs in pursuit of better yields with a stable rupee supported the rally.

At the current level, the market has priced in most of the positives but good corporate earnings could help the market inch higher. Our key concerns will be the sustainability of the FII inflow at current valuations and sustained recovery in corporate earnings. Change in the political environment could pose challenges for our market.

Q: What is your earnings forecast for FY20?

A: Nifty earnings are expected to increase in double-digit in the range of 15-18 percent, which is reasonable on the backdrop of low base and visible improvement asset quality ratio of BFSIs, which commands around 39 percent weight. We believe banking, infrastructure, cement and consumer should do well.

Q: Sensex surged 4,000 points in past six weeks. Is it the right time to buy stocks?

A: There has never been dearth of quality and alpha-generating stocks in the market irrespective of cycles. Hence, investors may still invest in quality stocks.

Q: What is your take on banking and financial stocks that have been front-runners in the rally?

A: The sector has outperformed in the recent past despite headwinds including sluggish capex cycle, delay in corporate recoveries and challenges in deposit growth, leaving little margin of safety given the strong upside. We prefer large banks with strong liability franchise and adequate provisioning levels.

Q: What are your top five picks for FY20?

A: Larsen & Toubro

L&T continues to remain one of the prime beneficiaries of the up-tick in capex in India. It is well-placed in the focused sectors like defence, road, railways and power T&D. We believe the company is well-placed to benefit from several big-ticket projects, as it satisfies all basic requirements from balance-sheet size, strong track record, technical expertise and adequate liquidity to bid for such projects.

ICICI Bank

We believe ICICI Bank’s liability and asset franchise has strengthened over the years with de-risking of its loan portfolio, rising market share in CASA, increased competitiveness in cost of funds relating to peers and improving capital efficiencies. We expect its RoEs to expand to 14 percent by FY20E and 15 percent by FY21E from 4 percent in FY19E, driven by improvement in margin and decline in credit cost.

Hindustan Unilever

HUL is expected to witness the fastest earnings growth among the major FMCG companies. It is estimated to register earnings CAGR of 23 percent over FY19-21 driven by both organic and inorganic initiatives. Acquisition of GSK Consumer’s India business provides HUL a strong foothold in the foods segment in terms of diversifying its portfolio and reducing dependence on homecare and personal care segments.

JK Cement

Healthy demand environment in its key markets including northern region and likely improvement in realisations in the northern region are expected to aid the company’s performance. Its value-added products continue to remain cash cow and ensure better return ratios. We expect its grey cement business to improve following commissioning of new kiln at Mangrol, which may warrant a further re-rating of the stock.

Sonata Software

We like Sonata’s differentiated business model, focus on IP and platforms, high dividend yield, quality balance sheet, high RoE and no equity dilution for the past several years. Given its platform focus, investments made in IP and S&M, decent cash generation and reasonable valuation, coupled with healthy growth (19.6 percent EPS CAGR over FY18-FY20E), we believe there exists legroom for further upside, notwithstanding strong stock performance over the past year.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Apr 11, 2019 11:42 am
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