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The volatility in the stock market will likely continue in the short term, Pratik Gupta of Deutsche Bank India said.
He said that does not mean the upside is unlikely; in fact the Sensex can end the current calendar year at 37,000 and Nifty at 11,400 as the structural growth story of India is intact for next 3-5 years with corporate earnings picking up.
"We are seeing 20 percent earnings growth in FY19 and will continue in next year as well, which will eventually drive the market but near term the market will be volatile," Gupta said in an interview to CNBC-TV18.
The Nifty50 rallied 9 percent to surpass 10,900 levels on Tuesday after correcting more than 10 percent from record high of 11,171 in January to hit 2018 low of 9,951.90 in March, but the recovery was gradual and amid rangebound trade.
Pratik said it would be tough to predict downside given likely strong structural growth story but it looks limited from hereon.
According to him, the market could fall 3-5 percent only if sharp appreciation in the US dollar and spike in crude oil prices. Overall, if it any fall takes place, it would only because of global cues.
Brent crude futures, the international benchmark for oil prices, is expected to average at around $80 per barrel by 2018-end, which would be manageable but beyond that there is a risk for country like India which imports more than 80 percent of its requirement, he said.
"India is structurally preferred market, outflow is not significant and domestic flow moderated a bit but will continue," he reasoned for keeping positive stance with some caution. "Be careful whlie selling stocks and sectors from hereon."
IT Sector
Accenture results already indicated that BFSI (banking, financial, services and insurance) sector growth is strong, so he prefers to keep largest exposure to companies which have major exposure to US growth and BFSI.
He sees relatively better growth and potential earnings growth going ahead.
Midcap IT companies has done very well and now valuations are much much higher, he feels.
As US is doing very well, there could be strong rate hikes in the US and the downside in largecaps is largely supported from share buyback and higher dividend, Pratik prefers largecaps over midcaps in IT space.
Banks
Corporate banks are showing a growth but they u can't grow due to balance sheet problem and slow lending, he said, adding there are far more NPLs (non-performing loans) coming from power sector.
In the corporate banks, some stocks are fairly attractive, he said but he prefers more higher growth banks in the private space, which include generally retail banks, high CASA banks and little bit corporate lenders.
Cement
"Cement volumes, affordable housing and infrastructure all are picking up, so we prefer cement stocks to play infrastructure story with 3-5 years' view," Pratik said.
However, the issue on pricing will persist for one more year, and cases in NCLT need to be solved, he stated.
Consumption
In last three election cycles especially before general elections, consumer discretionary space has been the best sector due to government spending and this time will be similar with added positive from normal monsoon, he said.
He further said Deutsche has been playing the rural theme from last year. "We like rural facing and consumer discretionary stocks."
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