Investors need to be more selective then usual with their decisions by sticking to quality of earnings & corporate governance, strong financials and growth prospects.
Shreyansh N Mehta
AUM Capital Market
2018 turned out to be the most volatile and eventful year for Indian market and economy where the benchmark indices hit an all-time high before witnessing a sell-off mainly driven by rising crude oil prices, depreciating international currencies, increasing trade protectionism, geopolitical updates, outflow by FIIs, macroeconomic data and corporate events.
But moving towards 2019, India has witnessed a huge positive change and a major boost in the economy with a sharp correction in Brent crude prices that helped in appreciation of the Indian rupee. This will further result in narrowing current account deficit, lower subsidy payout, lower risk of inflation and increased room for RBI to cut interest rate.
Politics along with economic headwinds would be a major factor influencing equity market in 2019. All eyes are focused on the general election of 2019 but after the outcome of recent state elections, it is observed that there could be volatility but not much divergence in the market.
Moreover, new reforms by the upcoming government will be the launch-pad that the markets will be looking for.
Steps taken by the government and the Reserve Bank of India (RBI) to ease rules on foreign borrowings and bonds would stabilise the rupee and rein in the current account deficit (CAD). Rising Indian inflation would be one of the most keenly watched numbers and the RBI might impose corrective measures to curb it by controlling liquidity or by increasing the interest rates.
Further, the government and RBI are in consultations over the liquidity squeeze that has gripped non-banking finance companies (NBFC). The government feels RBI opening a special liquidity window for NBFCs apart from banks, honouring credit lines already sanctioned to them will help.
Globally, markets will watch bond yields and how the geopolitical tensions pan out. Turbulence for global markets may emerge from Italy, Turkey, Brexit and the Middle East. The steps of the Federal Reserve would be keenly observed.Moreover, the incremental tariffs by the US on Chinese goods may dominate market moods in the coming year. Brent crude prices will float
around $60 a barrel and will halt the recent fall as the OPEC and non-OPEC members' new deal takes effect to reduce oil output.
Valuation parameters after the recent correction have become reasonable and the market looks attractive with visible growth earnings and strong fundamentals. 2019 will be the year of small-cap and mid-cap stocks along with positive participation from FIIs.
Significant fall in the commodity prices would also help markets to outperform other global markets. Indian rupee will remain strong and keep trading at around 70 and below against dollar.
The market scenario would be flat to mildly positive, at least until the general elections and Nifty will close the FY19 at around 10,500.
Going ahead with positive macro newsflows, there is a possibility of Nifty hitting 12,000. Nevertheless, in an unforeseen event, levels of 9,700 cannot be ruled out.
It's easy for emotions to overwhelm investing decisions, but now is the time to put the rule of 'buy low and sell high' into action.
Indian markets will maintain its upmove with a fair share of volatility. Investors need to be more selective than usual with their decisions by sticking to earnings quality and corporate governance, strong financials and growth prospects.
On the whole, we expect India to grow faster than many nations and long-term outlook for the domestic market continues to be strong.
We recommend buying the following stocks with an upside potential of around 15-20 percent from the current level with an investment horizon of 9-12 months:
L&T is well-placed to benefit from several big-ticket projects, as it satisfies all basic requirements, i.e., balance-sheet size, strong track record, technical expertise and adequate liquidity to bid for such projects.
Recovery in domestic business, order inflow and execution in domestic infra segment, focus on improving RoE and working capital, healthy execution of large order backlog and strong performance of key subsidiaries will strengthen the growth trajectory ahead.
MSIL is working towards its commitment to bring electric vehicle in India by 2020. MSIL's largest distribution network across the country, strong performance, strong product pipeline, new launches, next level of excellence in product design with updated technology, better product mix and ramp-up of Gujarat plant would moderate margins in the long run.
Government's 'Make in India' programme and anti-dumping duty on imports of CB from China has resulted in PCBL's high sales volume. Its increase in cash flow and improved working capital management has helped in reducing the leverage burden and overall reduction in debt.
PCBL with its technical superiority and cost efficient operating model is expanding its product portfolio which will help in reporting better numbers.
RBL's robust and diversified loan growth trajectory, well-maintained asset quality coupled with healthy margins, leveraging technology to acquire-engage and service clients, enhancing distribution through a combination of owned branches, and business correspondents, partnerships and acquisitions and highly capable management give a positive outlook for the bank.
Tamil Nadu Newsprint and Papers (TNPL) has emerged as the third largest player in the Indian paper industry with a wide range of portfolio. Consistent economic growth and greater emphasis for education show there is a big market/scope for the company like TNPL to grow going forward.
Paper industry has to face continuous YoY increase in zero duty imports of paper and packaging board under Free Trade agreements along with shortage of raw materials but TNPL has managed the above challenges by matching its capability, increasing capacity, performance and continuous R&D towards recycling and reuse.
The author is Manager Equity Research at AUM Capital Market.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.