The market has given a very good opportunity by showing steep correction from the recent highs it made in August. We feel that earnings recovery will continue in H2FY19 but at a slower pace. As a result, Nifty will make new highs till next Diwali but will struggle to surpass the 12,000 levels.
One crucial factor which will act as a barrier in pushing the index above 12K is earnings growth. As the growth is evident in across segments, be it the IT or the FMCG sector, on a conservative side, even if we project a growth of 5 percent on the Nifty EPS, it arrives at a target price of 11,779 on Nifty in the next 12 months.
For mid & small-cap space, I feel it is the right time to catch the falling knife at the current juncture. As we have seen, many companies across the sectors have posted very good results, which gives us confidence that the growth in the micro-economy is on track.
On the macro level, we are witnessing good PMI numbers, robust GDP numbers and crude is also settled at current levels; hence, we feel macros are also trying to be in place and with recent corrections which we saw in markets gives investors a very good chance to make quick returns of at least 15 percent in the market.
Important hurdles to watch out for
Well, it looks like the index is certainly heading higher but there will be crucial hurdles which could derail the rally for the index at least in the short term.
The Lok Sabha election is the sole factor for the Indian markets which will keep the markets busy at least till May 2019. On the favorable outcome, we will witness a lot of positive sentiments in the markets for the next five years.
The reverse side will definitely dampen the mood of the market. There will be international factors like Brexit and the US-China trade wars, which will have a cascading impact on the Indian markets.
Sectors to watch
NBFC sector: It has taken an abnormal beating on fears of ALM mismatch. Will the fear percolate into reality needs to be watched.
IT sector: The rupee has made a new low of 73-74 to a dollar. We do not see INR appreciating steeply in the times to come, neither do we feel it will steeply depreciate as we witnessed in the past few months. Hence, this is the new range of the rupee, as a result, the IT sector will continue to be in limelight.
PSU banks: As PSU banks did not participate in the rally since the past two years they might just make a comeback supported by earnings recovery. Also, we anticipate the cannibalisation of market share from NBFCs to PSU banks, hence PSUs will be in focus till the next year.
Stocks to buy
It makes sense for investors to hold on to good-quality stocks in the portfolio. The major correction in the market looks to be over and good-quality stocks are now showing signs of improvement.
Stocks like Aditya Birla Fashion & Retail Ltd, L&T Finance, Yes Bank, Federal Bank, City Union Bank, GNFC, Westlife Development, Parag Milk from the midcap sector should definitely be accumulated at current levels as all have very good growth story supported by good corporate governance.
I would also like to advise that now is the time to build your portfolio as good growth story stocks are available at attractive valuations; hence, one should keep a 2-year view and invest at current levels.
As we know "correction is healthy", the market has given us very good opportunity to buy quality stocks at attractive prices and valuations. Here are the five top ideas for the next one year:HDFC -
Target: Rs 2,011Ashok Leyland
- Target: Rs 146Yes Bank
- Target: Rs 302Reliance Industries
- Target: Rs 1,600Apollo Hospitals
- Target: Rs 1,540
PTC India - Target: Rs 105
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