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Last Updated : Aug 04, 2019 12:26 PM IST | Source: Moneycontrol.com

Next 6 months challenging for markets; Nifty to settle around 11,500 by Dec'19

The biggest mistake that retail investors make is to buy on the basis of decline in the stock prices, without looking at their financials

Kshitij Anand @kshanand

We believe further correction cannot be ruled out in the near term for the markets, and it is likely that Nifty would trade within a broader range for the rest of the year and could settle around 11,500 in the December month, Ajit Mishra, Vice President (Research), Religare Broking, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Q: What is the way ahead for markets?

Close

A: Considering the current economic slowdown, muted earnings and stretched valuation—we would continue to remain cautious until there are meaningful signs of revival in corporate earnings. However, the upcoming key events would have a bearing on Indian markets and would dictate the trend.

On the domestic front, the RBI monetary policy would be one of the key events for investors and traders.

Given the comforting inflation data and decelerated IIP growth, the street would be expecting at least a 25bps cut by the RBI. However, the commentary on growth and inflation outlook would be a crucial factor.

The monsoon progress would also be a crucial factor for the Indian markets in the near term as an increase in the deficit would adversely impact the inflation outlook.

Further, on the global front, new tariffs announced by the US government yesterday would keep the global markets volatile. We feel Nifty would oscillate within 10,750-11,250 zone in the coming week.

Q: The S&P BSE Midcap index has plunged more than 20 percent, and the S&P BSE Smallcap index is down 27 percent from their respective record high levels. Can we say that broader indices are in a bear grip?

A: The underperformance amongst broader markets is mainly a result of weak domestic sentiments and muted earnings announcements for Q1FY20.

Going forward, given the sharp correction in the broader markets over the last ~1.5 years, we expect the underperformance would narrow down as many quality midcaps and smallcap companies are available at reasonable valuations.

However, given the stretched valuation of largecap stocks and the current economic slowdown, further correction in the benchmark indices cannot be ruled out which would drag broader markets lower.

Hence, investing prudently in a phased manner is the key, if one wishes to take advantage of correction.

Q: What are the mistakes that one should avoid making especially at a time when markets are falling?

A: The biggest mistake that usually retail investors make is to buy on the basis of decline in the stock prices, without looking at their financials. The focus should be on stocks with strong corporate governance, healthy balance sheet, comfortable valuations and good growth prospects.

In fact, these are the times when some of the marquee names are available at an attractive valuation, thus providing a margin of safety.

On the other hand, it is very important to sell at the right time if the stock is falling due to deteriorating fundamentals, corporate governance issues or some big structural changes in its respective industry.

Also, investing all the funds at once may not be a prudent approach as the markets may correct further.

Q: FIIs are certainly fleeing India after the recent tax surcharge –what are the kind of levels you are looking at for December 2019? 

A: The next six months could definitely be a challenging one for Indian markets due to its stretched valuations. Further, the slowdown witnessed across sectors would only add to the worries for Indian markets. Hence, we believe further correction cannot be ruled out in the near term for the markets. We feel Nifty would trade within a broader range for the rest of the year and could settle around 11,500 in December.

Q: More than 300 stocks are trading below 200-DMA that include MRF, 3M India, Maruti, Dr Reddy’s, Britannia Industries, Bajaj Auto, NIIT Tech, RIL, Lupin, etc. Are they worth a buy at lower multiples for a long term holding horizon? 

A: Currently, the prominent names mentioned above are facing challenges and underperformance amongst the stocks is mainly on account of on-going economic slowdown, muted earnings for Q1FY20 and slowdown in their respective sectors.

However, we expect volumes for auto companies to recover gradually from H2FY20.

Hence, it would be prudent to be selective in the auto space given the current challenges (slow progress of monsoon, liquidity concerns in NBFCs, etc.) faced by the sector.

We would advise being cautious on Pharma stocks as they would continue to face challenges with respect to US FDA approvals and drug pricing issues.

Further, sectors like consumer staples/discretionary, oil & gas and IT are witnessing industry slowdown for the near term however long term outlook remains bright.

We believe investors should buy these stocks with long term holding horizon as they are fundamentally sound with strong corporate governance, healthy balance sheet and good growth prospects.

Further, these stocks are market leaders and trading at a premium over its peers so lower multiple would provide valuation comfort.

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.

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First Published on Aug 4, 2019 12:26 pm
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