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The market has continued its upward journey for almost a month now barring intermittent hiccups. The Sensex has rallied 5,000 points in four-and-half-month to hit psychological 38,000-mark on Thursday.
Even the Nifty surged around 1,500 points during the same period to move near 11,500-levels, backed largely by financials and select major largecaps.
"Now the market is behaving like we saw at the beginning of the year. We are cautious on emerging markets as some global headwinds may resurface by end of the year," Nilesh Shah of Envision Capital said. He expects the market to trade in a range, going ahead.
He said the entire investment canvas is working on hypothesis. He believes core economy is going to be strong next year, core sectors will do well, interest rates are not going to increase significantly, major commodity pressure is unlikely, housing activity is picking up, construction will see pick up, private capex may pick up by end of this year, etc.
On the basis of above investment thesis, cement could be long-term contra bet, he feels. "Currently, cement volume growth is in single-digits due to headwinds (like freight, power & fuel cost, etc), which may recede soon and next year onwards it would be in a sweet spot."
Global risks
Shah said he is not quite sure that crude is a big risk to India while politics is a risk to some extent but the government has managed fiscal position well.
He feels the global risk is big. "Global markets are showing some calmness. US economy growth is good but US Federal Reserve commitment to raise interest rate gradually would be biggest risk. So risk more would be global than domestic."
Earnings
He feels overall it is a mixed set of earnings season. "Technology, consumer staples, private credit players etc reported strong earnings in April-June quarter and the performance of these sectors may continue for few more quarters," he explained.
While explaining further, he said however, cement and capital goods space did not performed upto the mark during the quarter.
On the whole, earnings season is lot better than earlier estimates.
Banks
Nilesh Shah said one needs to wait for few more quarters before looking at corporate banks. "They have been saying the worst in terms of bad loans is over but there has consistently been a rise in NPAs and provisions. So my sense is there could be pain for 1-2 quarters."
He feels with 2-3-year perspective, these stocks look attractive but these are still contra bets.
Symphony, Air Conditioner
Disclaimer - Envision Capital owns Symphony.
Symphony had reported bad set of earnings for the quarter ended June 2018. The company's Q1FY19 net profit fell 49 percent to Rs 20 crore and revenue slipped 23.2 percent to Rs 146 crore YoY.
Shah said it was weather related carnage that hit earnings but there is some advantage in air coolers space. Company itself after strong domestic position, started focussing to increase international footprint, he added.
So long term opportunity is not yet lost for the company, he believes.
IT and Pharma
IT stocks are in a pretty strong position now with strong US economy, favourable currency etc, he said, adding if rupee gains which may happen only after couple of quarters.
He said pharma space seems to at same levels like technology sector was two years away. "So right now it is tough to say but what I can see that consensus US pricing pressure, regulatory changes are there."
He feels pharma earnings may improve soon.
Commercial Vehicles, Tractors
Envision Capital is bullish on commercial vehicle (CV) space than tractor.
Shah expects tractor segment to grow in single digit for this year but CV segment in medium to long term, he said it is quite possible to grow in double digit.
Financial
Among financials, insurance space looks most attractive as India is highly underinsured, he believes. "This sector is likely to grow 5-10 times going ahead but bet on quality names among listed ones and payoffs would be significantly higher."
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