'IT and Consumer back in play! Private banks set to outperform in next 6 months'

However, the massive victories still do not ensure that Congress will have the requisite strength to form a stable government at the Centre post-2019 Lok Sabha elections, instead, they have managed to considerably weaken the ruling party’s chances of re-election.

This is an incremental negative for the market and will result in higher volatility over the next six months resulting in further compression for market valuation multiples.

Global events to dictate near-term market movement:

The big domestic event is past now and for the near-term, the market’s focus will shift on the global factors. Crude oil cooling is a positive but trade tensions and slowing global economic challenges will persist.

Global market liquidity has tightened but this can change depending on the Federal Reserve’s expectations of how soon the US economy could enter a recessionary phase. The global macro picture is not very encouraging, but the asset prices have also corrected from the peak levels and near-term correction could be restricted.

The Indian market is more likely to follow cues of global markets and the correlation with global market movements is likely to be quite high.

Earnings and quality the two key medium-term themes:

The government starting to take highly populist measures seem more likely than ever. At this juncture, a significant focus on farm loan waivers and higher government spending resulting in higher fiscal deficit cannot be ruled out.

Apart from the election results change in central bank leadership will be another concern on fiscal stability. So, INR will be under pressure which is positive for export-oriented companies. Higher government spending in rural areas will be positive for consumer companies. IT and Consumer sectors are also marked by high-quality companies and strong earnings visibility.

Apart from IT and Consumer, improvement in liquidity situation could be positive for the BFSI sector, but bond yield could rise because of higher fiscal deficit which will be negative for NBFCs.

Thus, in financial services, private banks are likely to outperform the NBFCs. Earnings growth and quality will be key themes to tide the market volatility over the next six months.

Disclaimer: The author is Head of Research at Reliance Securities. 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.