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One of the factors driving the current market trend is overpowering of sentiment over fundamentals, Deutsche Equities highlighted and explained how it is a bottom-up market for investors currently.
“The fall in this market started with global cues and then domestic cues also came into play. The expectation of what is happening in the bond markets has gone impacting sentiment. But, economy is improving and capacity utilization across sectors is very high,” Abhay Laijawala, Head of India Research at Deutsche Equities told CNBC-TV18 in an interview.
In his view, it has to be seen how this interplay between fundamentals and sentiment works out.
“Our expectation of earnings is about 20 percent and valuation derating of around 10 percent… investors can wait and watch and fundamentals will re-assert going forward,” he told the channel.
Sectors to lead are going to be the one where there is certainty to earnings growth that determines sector and stock selection.
“Consumer discretionary and private sector banks have the potential for consensus upgrades,” he said.
Speaking on the political stability issues, Laijawala believes that it may not be appropriate to extrapolate the trends in UP with the general elections.
“Clearly, India has enjoyed the premiums for political stability and as coalitions start to take route, valuations get hit,” he observed.
If the government strengthens its thrust on rural reflation, it is likely that political narrative starts to shift, he added.
He remains positive on the metals space, especially steel.
The demand growth in India is very strong and cutbacks in China continue, which should help steel prices in being steady.
In the auto space, he likes CV segment and said that the kicking in of BS-6 norms is likely to be a driver for truck demand.
He believes that Titan could be a long term structural story as the shifting of unorganized to organised is accelerated post the unearthing of jewellery and banking scam.
Laijawala is also upbeat on the cement space. “Stronger players are acquiring capacities and they are getting stronger. If the demand growth goes back to long term trajectory of 8-9 percent, industry capacity utilization rates could rise to 80 percent,” he said.
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