SMC Global Securities
Markets appear to be much better in Year 2019 compared to the behaviour we saw in year 2018. Two important variables among others that went negative for Indian markets were rise in crude prices and consistent selling by foreign institutional investors (FII).
And now both of these factors appear to be in favour and will support the markets. If one sees the performance of the Indian markets as compared to other emerging markets, Indian markets have certainly outperformed by a margin on year to date basis and the reason is attributed to the large flows coming through our domestic institutions.
On the global economy side, trade war worries and global growth slowdown as evinced by economic data which is even voiced by major central banks may add to volatility in the markets in 2019. All these may lead to lower pace of tightening or pause by central banks to support growth in their respective economies like US Federal Reserve, European Central Bank, etc. which in turn my support markets.
However, planned interest rate hikes by Fed (now projected two hikes instead of three in 2019) and planned balance sheet reduction may affect FII flows in emerging markets thus adding to volatility. Trade worries and negotiations may continue for long between US and China thus adding volatility to the markets.
Back at home, investors would be eyeing the general elections outcome in 2019. Historically it has been seen elections may play out well for the consumption side and consumer discretionary side on account of rural focus and populism.
We are looking at 10 themes that will be played out during the year. A strong consumer loan growth and rising real income will be an advantage with respect to consumer discretionary. Also a turn in capital expenditure and public capex remaining strong will boost the growth in the economy. Even loan growth prospects are looking up as the economy gathers pace. The NPA situation in the Indian banking system has been stabilising and the bankruptcy processes are gaining pace.
Going forward, the recognition of and the quick pace of resolution for non-performing assets will continue to strengthen Indian banks over the next few years.
The advice to investors to tide the volatility in the markets is to spread investments over months and remain invested for three years or more.
We selected top 10 stocks for 2019 - Reliance Industries, ITC, ICICI Bank, Bajaj Finance, M&M, UPL, Indian Hotels, L&T Technology, Torrent Power and KEC International - which could return 15-28 percent.
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