Expect Brent crude to hover around $82-85 a barrel in Q1 2019: BNP Paribas

Falling rupee, rising crude oil prices, liquidity crisis fears around NBFCs and US-China trade war tensions have spooked the market. The Sensex and Nifty have corrected more than 6 percent each since August 28.

"The market is facing international and domestic issues. So, current level of volatility may continue for some more time," Manishi Raychaudhuri, Asian Equity Strategist at BNP Paribas told CNBC-TV18.

Talking about currency market, he said the pressure might continue in short term along with short covering and knee jerk reactions intermittently.

Rising crude prices

Global oil strategists are of the view that crude may not go much higher from these levels. BNP expects it around $82-85 a barrel in Q1 2019 on supply side disruption but does not expect it around $90 a barrel.

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Manishi Raychaudhuri

MD, Asian Equity Strategist, HoR|BNP Paribas Securities India

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But in Q2 2019, supply is expected to increase from US companies, which may bring some relief to rising oil prices.

Brent crude futures have rallied more than 28 percent year-to-date to trade near $82 a barrel, the highest level since November 2014 while the Indian rupee has fallen 14 percent to trade around 72.65 a dollar.

Sensex target

BNP Paribas has retained its Sensex target for 2018 at 37,500. "We are not really reworking target. We downgraded India to Neutral a quarter ago, which I think we achieve."

In recent rally of July and August, top 5 stocks generated 70 percent return and next 5 stocks returned 30 percent, but large universal of stock have not performed up to the mark. So one can start looking at stocks that underperformed but have strong fundamentals, he advised.

NBFC liquidity crisis fears

In near term, Raychaudhuri said he doesn't expect drastic measures from central bank and government. RBI already said it is inducing liquidity through open market operations programme. "We have also seen similar statement from larger PSU banks which lend to NBFCs. Asset liability management concerns may continue in near term."

While selecting stocks in NBFCs, one should look at asset liability management programme and there are some concerns on housing finance companies in this regard. Even valuations of these companies had reached to highest levels in last 8-10 months, he said.

Manishi Raychaudhuri said more obvious call right now is to bet on exporters as US dollar appreciation is strong tailwind for IT and Pharma companies. "IT is on its top of preference list."

In consumer discretionary, many auto stocks declined to their 52-week lows, so one can look at reasonable valuations, he advised.

He said one can also look at oil companies like refining, marketing, operational, chemical and refiners. "Refining margin is going to stay reasonably strong in short term."