Sumeet Bagadia said the impact of government's crucial initiatives like demonetisation and GST are fading and the positive impact of these structural measures are likely visible in FY19. We expect around 15-20 percent growth in Sensex EPS in FY19.
After phenomenal returns in 2017, the Nifty is expected to rally around 15 percent and hit year-end target of 12,000, Sumeet Bagadia, Associate Director at Choice Broking said.
He expects around 15-20 percent growth in Sensex EPS in FY19 and he is of the view that primary market activity is expected to remain sanguine in 2018.
"ICE Brent crude oil has given a symmetrical channel breakout in December 2017 and expected to witness a strong rally in the first half of 2018. On the higher end price may reach towards USD 77 to USD 85 in 2018," Bagadia said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q. 2017 has been a great year for Indian equities as the market grew by around 29 percent. Do you see same kind of rally in 2018 also and what is your Nifty target for December 2018?
A. 2017 has been remained spectacular year for the investors with key benchmark Sensex and Nifty giving around 29 percent return, while broader market did even better.
Though the overall return may not be that great in year 2018, we expect positive return in equity mainly on the back of earning improvement. We expect around 15 percent return in equity and our Nifty year-end target is 12,000.
Q. What are the next key events (or themes) to watch out for the year 2018? Will those events drive the market up or down? Also what are the global upside and downside risks for Indian markets in 2018?
A. Macro-economic stability plays a crucial role for sustaining or increasing the benchmark indices' level. Due to the high crude oil prices and reviving commodity prices on global front, upside risks for inflation has increased and low tax collection due to implementation of GST has forced the government to enhance borrowing by Rs 50,000 crore in FY18 which in turn has raised the yield level in economy.
Thereby, inflation, interest rate and fiscal deficit are the crucial macro-economic indicators which can inject significant bearings on investors’ sentiments.
In addition, key events which would decide the market direction in 2018 are:-
On domestic front include 1) momentum in earning growth 2) progress on GST implementation front 3) any initiative to take petrol and diesel under GST ambit and 4) assembly election in 8 states.
Global front include 1) US relationship with North Korea and 2) emerging political risk in middle-east countries
Q. India Inc raised over USD 11 billion through IPOs in 2017. Will 2018 be another golden year of IPOs?
A. As many as 153 initial public offers hit the Indian stock market in 2017, raising USD 11.6 billion. During Q4 2017, 22 IPOs hit the market, an increase of 47 percent QoQ in terms of number of deals.
While a record number of firms made their IPO debut in 2017, many key players plan to enter the primary market this year and raise funds for their expansion and growth like Hindustan Aeronautics (HAL), NSE, Aster DM Healthcare, Bharat Serum and Vaccines among others. Thus, we are of the view that primary market activity to remain sanguine in 2018.
Q. Everyone is saying corporate earnings were far better than expected in September quarter. Do you see December quarter earnings laying foundation stone of earnings recovery going forward? What is your earnings outlook for FY19?
A. The impact of government's crucial initiatives like demonetisation and GST are fading and the positive impact of these structural measures are likely visible in FY19. We expect around 15-20 percent growth in Sensex EPS in FY19.
Q. What are you key expectations from the last full-fledged Budget. After Gujarat elections there are as many as 8 state assembly elections lined up before general elections in the year 2019. Do you see a change in tactics of the Modi government or a policy shift in policy framework – from reformist to populist?
A. Current government has created its credibility on the back of its structural reform for reviving the economy. Thus it would be highly unlikely that Budget 2018 will a populist one, however it would be not so reformist especially after the Gujarat state election result. It would be mix of both.Rural people would be disappointed from the current government due to these three factors
1) Increasing unemployment in rural areas
2) Rising cooking gas and kerosene prices
3) Continued low minimum support prices (MSP) for key food items
Thus, we think the government can take some populist measures to please farmers.
Q. What is you outlook on oil prices as crude already crossed USD 66 a barrel? Also share outlook on metals prices for 2018?
A. Crude Oil: ICE Brent Crude has ended the year at USD 66.87, up 44 percent from the June low of USD 46.38. The OPEC and Non-OPEC production cut coupled with improving global demand was main reason behind the rally in crude oil price.
However, rising US Crude production has acted the limiting factor throughout the previous year. US crude production hit a 46-year high in October according to an EIA data (monthly). On the other hand, US crude Oil export also rose during the previous year.
Going into the New Year, continuation of production cut by OPEC and Russia to act as support to any fall in crude oil price. In addition, global demand led by China (one of the largest importer of crude oil) is expected to remain strong. Technically, ICE Brent crude oil has given a symmetrical channel breakout in December 2017 and expected to witness a strong rally in the first half of 2018. On the higher end price may reach towards USD 77 to USD 85 in 2018.
Base Metals: The year 2017 had been good for base metals as the base metal pack added 23-34 percent over the last year; led by aluminium (USD 2,268, up 34 percent) and copper (USD 7,247, up 31 percent). The industrial metal copper, often seen as the barometer of global economic condition witnessed the biggest yearly gain in 2017 after 2010. The rising demand backed by strong global data pushed metal prices higher.
Going forward the improved demand coupled with supply disruption in China is going to support the rising copper price. Moreover, technological changes like growth of Electric Vehicles (EVs) will boost the demand for base metals like aluminium (used for car body, minor use in battery), copper (used in winding and rotor) and nickel (used in battery). Technically, all these base metals are trading above the initial reversal ratio (38.20 percent) which suggests further rally in the days to come.
Q. As we moved to 2018, what are your 5 best picks for 2018?
A. ONGC: Buy at Rs 192.35 & Upto Rs 185.00 | Target Rs 230.00-250.00| Return 25%
On a quarterly chart, the stock has formed a Bullish Harami candlestick pattern which is a bullish reversal formation, apart from this, the preceding candlesticks is trading above the high of Harami candlestick which confirms the reversal of the trend.
On a monthly chart, the stock has given a breakout of its rangebound move in which it had been trading for more than three months which shows that the stock has shifted its range to an upper level.
On a weekly chart, the stock has given a breakout of its upper band of symmetrical triangle formation which indicates a bullish reversal movement in the counter.
A weekly indicator MACD reading is at 6.41 level with a positive crossover, apart from its, MACD is trending above its zero line which points out for a positive breath in the stock.
Amara Raja Batteries: Buy at Rs 834.45 & upto 800.00 | Target Rs 1,040.00-1,073.00| Return 25%
On a monthly chart, after forming a topical high of Rs 1,079.70 level in Sep-16, the stock had corrected its self-up to the level of Rs 666 level, however it clearly seems that the stock has found a strong base at Rs 666 level which is a 50.00 retracement level of its previous bull run from Rs 205 to Rs 1,128 level.
On a weekly chart, the stock has given a breakout of its upper band of Descending spilling channel formation. Moreover, the stock has been trading with its strong support of 21 weeks moving average which shows that near to medium term trend is up and the stock could accelerate its upside movement.
A weekly momentum indicator RSI reading is at 60.54 level with a positive crossover, apart from this, the RSI has given a breakout of its downward sloping trend line which points out for a positive breath in the stock.
SAIL: Buy at Rs 92.70 & upto Rs 87.50 | Target Rs 112.95-117.00| Return 19%
On a yearly chart, the stock has formed a Morning Doji Star candlestick and it is signalling a change in trend from bearish to bullish.
On a weekly chart, after spending weeks in a range bound move, the stock has given a breakout of its upper band of Flag formation with above-average volume which can be considered as a continuation formation.
Even after taking a clue from its 200 weeks moving average, the stock has given a healthy bounce back and has managed to sustain above its upper range with health volume. This type of formation on moving averages, often confirms trend reversal move.
A monthly indicator MACD reading is at 7.71 level with a positive crossover, apart from its, MACD is trending above its zero line which points out for a positive breath in the stock.
UPL: Buy at Rs 755.75 & Upto Rs 725.00 | Target Rs 902.00-1,002.95| Return 29%
In recent months, the stock had given healthy correction from its topical high of Rs 902.50 level, however, this correction paused at Rs 695.10 level which is a 38.20% Fibonacci retracement level of its classic up move from Rs 367.25 level to Rs 902.50 level. This type of structure on Fibonacci retracement level always considers an intermediate trend reversal point where one could make a buy entry with decent Stop-Loss.
Additionally, to support the above context, the stock has formed a Bullish Hammer candlestick with the support of its 21 weeks moving average which can be co nsidered as a bullish reversal formation.
A weekly momentum indicator RSI reading is at 47.91 level with a positive crossover, apart from this, the RSI has given a breakout of its downward sloping trend line which points out for a positive breath in the stock.
JK Cement: Buy at Rs 1,113.70 & Upto Rs 1,055.00 | Target Rs 1,367.70-1,488.25| Return 31%
On a weekly chart, the stock has found a good support at Rs 922 level with the support of its 50 weeks moving average which suggests that the stock is about to spurt its upside movement from the present level. Additionally, a 50.00% retracement level is also providing a good support at the Rs 914-915 level, of its previous up move from Rs 632.70 level to Rs 1,137.60 level.
On a daily chart, the stock has given a breakout of its rectangle formation in which it had been trading since last many days which indicates robust upside movement in the counter from the present level.
A weekly indicator MACD reading is at 33.10 level with a positive crossover, apart from its, MACD is trending above its zero line which points out for a positive breath in the stock.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.