Even as the Indian currency has been hitting fresh record lows, experts at Reliance Securities feel that rupee could find some resistance around 72 per US dollar. The currency has seen some erosion on the back of high crude prices along with dollar strengthening.
“On the higher side, crude should face resistance near USD 80.5 per barrel that was tested in May 2018. Any breakout above USD 82 per barrel levels, the crude oil price would surge to USD 91 per barrel,” Rajeev Srivastava, Head-Retail Broking, Reliance Securities told Moneyconrol’s Uttaresh Venkateshwaran.
For the market, he expects earnings to set the tone going ahead, the pace of this recovery is likely to be a gradual one though. “Our December 2018 target for Nifty is at 12,000,” he further added. Edited excerpts:
What are the key levels to watch out for the rupee as well as oil? What are the major risks for the same?
Technically, the rupee has been weak since the start of the year from the lows of 63.20 against the US dollar to an all-time high of Rs 71.97 against the US dollar. We believe the Indian rupee will find some resistance around the 72-levels against the US dollar.
Brent crude has bounced from its 200-day average near to USD 70 per barrel. On the higher side, it should face resistance near USD 80.5 per barrel that was tested in May 2018. Any breakout above USD 82 per barrel levels, the crude oil price would surge to USD 91 per barrel.
What is the outlook on the market for the remainder of 2018 and for rest of FY19?
The upside for the market for the rest of 2018 is limited. While the macro risks are rising, current earnings recovery provides the positive traction for the market. We expect the market likely to move up in 2018, but the pace of the up move is more likely to be gradual. Our December 2018 Nifty50 index target is 12,000.
What are the positive cues that the D-Street will watch out for? What are any other risks for the market, other than crude and rupee movements?
Earnings recovery is the key. Last fiscal ended March 2018 (FY18) saw a very healthy earnings growth for the Nifty 50 index of 17% and expectations for the current fiscal ending March 2019 (FY19) are mostly in the range of above 15%.
Earnings growth is the positive trigger for the market. While the market is keeping a close eye on the crude oil price movement and the Indian rupee, it will closely watch the state elections that are scheduled towards the end of 2018. We see the Indian market to remain volatile.
The key talking point this year has been the large downward move on midcaps. But they, too, have recovered from their lows. How should investors approach the midcaps space?
A significant part of correction for midcaps is already done but the market is still in risk aversion mode as dictated by the diversion in the stock price performance of top 10 names versus the broader market. Rising macro risks and a possible increase in market volatility do not augur well for the small-caps and mid-caps.
However, quality mid-caps with strong return ratios, lower leverage and high cash generation will still continue to be preferred even though they might be perceived as expensive.
What are the global cues that the market will keep an eye on?
Global cues now mostly emanate from the US. Trade-related announcements and the statements by the Federal Reserve continue to impact the market. The market will keep close tabs on these developments.
On a sectoral basis, what is your outlook on FMCG, metals, aviation, pharmaceuticals and financials?
Our outlook on the following sectors are:
FMCG: Positive from operating performance basis but valuation challenges persist at current levels. ITC is a good bet at current levels as it will see softening base and is attractively valued. Apart from rural is a good theme to play.
Metals: Some positives are emerging for the sector with some easing on trade challenges but volatility could persist.
Aviation: Crude moving up and inability to take pricing up sufficiently is a challenge for the sector.
Pharma: One of the best turnaround plays. The US pricing scenario seems to be stabilizing and challenges in plant clearances are past their peak. Earnings growth trajectory should improve going further and dollar appreciation tail winds offer improving visibility for earnings.
Banks & NBFCs: Earnings growth challenges for the banking sector could persist for a couple of more quarters but a bulk of NPA recognition has happened. With improving nominal GDP growth rate, the credit growth should pick up. Preference for private retail banks over PSU banks is likely to continue.
What are your favourite stock picks?
Our top favourite stocks are:
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