This could be the case if elections results throw up an unfractured mandate and earnings momentum is maintained.
Brokerage firm Kotak Securities expects the Nifty to perform in a range of 10,000 and 13,000 by December 2019, implying an upside of around 20 percent (as of December 7, 2018 close).
However, this could be the case if elections results throw up an unfractured mandate and earnings momentum is maintained.
“Assuming a corporate-earnings growth of 16% on CAGR basis for FY18-to-FY21, we should lead to Nifty EPS of around Rs 680-700 by end of December 2019,” Kamlesh Rao, CEO of Kotak Securities said in a statement.
Having said that, if the elections outcome is not favourable, the Nifty could fall to levels of 10,500 or 10,000 by the end of next year.
The brokerage firm expects earnings to show double digit growth in FY19 (14-15 percent).
Further, Rao explained that Kotak Institutional Equities is building in 29 percent earnings growth for the Nifty in FY20, which will be mainly led by banking.
One of the key events it is tracking for the year ahead is the resolution of NCLT cases in 7 out of total 12 cases, which will bring in a good cash flow back to the banks.
Kotak expects trade war, Fed rate action and outcome of Brexit to be crucial global cues for the market.
On the domestic front, next 6 months will be challenging and volatile due to the upcoming elections. Having said that, they will also provide investment opportunity for investors.
Investors should focus on companies driven by good quality management and also having high earnings growth as well as reasonable valuations - given the thinning scope of re-rating in 2019. Stocks returns may mimic earnings growth. Hence it is ideal to focus on growth stocks”, Rao added.
Sectors in focus
The research firm has eight sectors in focus for the year ahead, which includes names such as automobiles, corporate banks, and power sector, among others. Below is the list of all the sectors and the outlook for year ahead.
Automobiles: It expects lower crude prices to help the space and feels current volume slowdown has made stocks attractive. It anticipates raw material price situation to improve in FY20.
Auto ancillaries: The firm sees healthy replacement demand and recovery in volume growth in FY20. Within this space, it finds tyre stocks to be appealing, while exports and currency could aid growth ahead.
Corporate Banks: A steep decline in loan-loss provisions could lead to sharp surge earnings of corporate banks. NPL cycles have peaked, it said, while NCLT resolutions could also shore up finances.
Building materials: Kotak believes that valuations have gone far below 10-year averages. After the steep decline in FY19, it sees earnings to rise by 25-30 percent in FY20.
Construction: Financial closures, NBFC funding, and election hangover should abate from middle of next year, the brokerage said. It finds valuations to be attractive.
Power: Kotak believes that the power demand has revived and capacity addition in non-renewable segment has been miniscule. This has led to improvement in utilization levels.
Metals & Mining: It expects global growth to be steady next calendar year and said that aluminium could see good growth prospects.
Information technology: It believes that real benefit of currency depreciation will reflect in earnings for FY20. The demand across sectors, including BFSI, is healthy.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .