Three stocks that offer a margin of safety and high probability of re-rating over the next one year are: L&T, State Bank of India and IndusInd Bank, Gaurav Dua, SVP, Head – Capital Market Strategy & Investments, Sharekhan by BNP Paribas said in an interview with Moneycontrol’s Kshitij Anand.
Q) In the run-up to Diwali 2020, Govt released two stimulus packages to boost growth and revive the investment cycle—do you think it is enough? What are your views?
A) At the current stage of economic recovery, the policy measures are aimed at supporting high employment generation and troubled sectors. The surge in household savings and the recent buoyancy in GST revenues have provided enough fiscal legroom to the central government.
Also, the multiplier effect of the stimulus would be better with the removal of restrictions and festive spending now. However, the measures would only support the nascent recovery and not enough to trigger an investment cycle.
Especially since a large part of Europe and some large countries have gone back into lockdown which will adversely impact global trade and subsequently has its fallout on the Indian economy.
Having said this, the series of policy measures do instill confidence among businesses in terms of policy responsiveness and willingness on the part of the government.Q) Which sectors are likely to benefit the most from the stimulus packages unveiled by the Government in the run-up to Diwali 2020?
A) The Atmanirbhar Bharat 3.0 does support a range of sectors like autos, textiles, consumer goods, construction, and engineering among others. The focus of the policy measures is also to support MSMEs that have been among those hit badly by the pandemic.
Q) Any specific stocks which you think could benefit the most from the package and why?
A) What the recent stimulus would do is bring investor focus back on to engineering and construction sectors which have lagged behind other sectors in the rally. Within these segments, we prefer L&T, Supreme Industries, and Amber Enterprises.
Q) What is your message to investors for SAMVAT 2077? Outlook for markets
A) Despite the recent run-up, we remain constructive on equity markets. There still exist a lot of pockets of value and stocks with attractive valuations that can provide reasonable returns over the next one year.
Three stocks that offer a margin of safety and a high probability of re-rating over the next one year are L&T, State Bank of India, and IndusInd Bank.
Q) Which sectors likely to hog the limelight in SAMVAT 2077?
A) Rally has been led by IT Services, Consumer, pharma, and some heavyweights like Reliance that have been relatively less affected by a pandemic or are recovering quickly.
Lately, the smart money is moving into banking stocks especially the large private sector banks. Over the next one year, we expect significant investor interest and possible re-rating of certain sectors like NBFCs, real estate and engineering.
Having said this, we continue to remain positive on the pharma and specialty chemical space and see the recent correction as an opportunity to accumulate them.
Q) FIIs have turned aggressively bullish on Indian markets especially in November which powered Sensex, and Nifty to record highs. Do you think the trend will continue?
A) Foreign inflows are very unpredictable and volatile. However, we expect a general trend of higher allocation to emerging markets to sustain in the medium term given the pressure on the US Dollar.
The rising twin deficit and other economic woes would keep US Dollar under pressure which is positive for the emerging market in general.
Q) Markets hit fresh record highs but MF data suggest that SIP are still falling off. Do you think some of the retail investors have missed the bus who have stopped their SIPs? How are you analyzing the data?
A) Though the markets are at an all-time high, there is no sign of euphoria. In fact, we see a lack of conviction among retail investors despite the subpar returns in bank deposits and other fixed-income instruments.
Q) Economic recovery is visible at least on paper and Moody’s recent commentary on India’s GDP confirms the sentiment. Do you think economy-linked sectors will be the winners in the near future?
A) The pace of economic recovery has positively surprised everyone. An improving trend in the economy is likely to sustain going forward and the cyclical sector could do better than defensive sectors in the next phase of rally.
Consequently, we see potential re-rating in sectors like NBFCs, construction & engineering and real estate.Disclaimer
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