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Last Updated : Jan 13, 2020 12:38 PM IST | Source: Moneycontrol.com

'Nifty may touch 12,500 before Budget 2020; L&T, Kotak Mahindra & Titan top picks'

Markets have discounted tensions and benchmark indices hit all the highs, we expect the market to rally ahead of Budget 2020.

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In the short term, the market has discounted geopolitical tensions and benchmark indices have hit all-time highs; we expect the market to rally ahead of Budget 2020, Gaurav Garg, Head of Research at CapitalVia Global Research - Investment Advisor, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpts:

Can we say the worst is over of Indian market and all eyes are now on the Budget and earnings?


The market remained volatile amid geopolitical tension between Iran and the US, but things have not stabilised just yet. In the short-term, the market has discounted geopolitical tensions and benchmark indices have hit all-time highs; we expect the market to rally ahead of Budget 2020. Also, third-quarter results, kick-started on Friday after IT major Infosys declared its result, should play a factor

What are the important support and resistance levels to watch out for in the coming week?

The Nifty needs to hold on to 12,300 level for the upside to continue. This will act as a make or break level. 12,100 level will act as major support and any dip will be a buying opportunity.

Metal and NBFC stocks may outperform indices. The Nifty50 is likely to touch 12,500 ahead of Budget 2020, as strong currency and lower crude prices may help the Indian market to move to this short-term milestone of 12,500.

Any crucial events which investors should take note that can impact D-Street sentiment?

Q3 financial results will be a key driver. Key economic indicator data which include IIP, CPI will also impact the January series.

Global markets are also trading with positive momentum and are likely to perform well. Union Budget 2020 will also drive the market.

What is your view on Infosys results? What do you recommend – buy, sell or hold?

The focus of investors will be more aligned towards the outcome of the investigation on the whistle-blower case, attrition levels, total contract value pipeline momentum, revenue conversion of past deals and improvement in margins.

The attrition rate at Infosys stood at 21.7 percent in the second quarter of FY19 which is much higher than its closest competitor Tata Consultancy Services (TCS) that reported an attrition rate of 11.6 percent in the second quarter of FY 19.

So, actions taken and their effects will be watched closely because client satisfaction and employee attrition are closely related.

The digital business of Infosys accounts for 38.3 percent of the total revenue during the second quarter ended September, but in December quarter we are expecting there will be margin pressure due to pricing pressure.

But, banking, financial services, and insurance (BFSI) segments may become a driver in its revenue going forward. Based on this, we can buy Infosys amid good quarterly results in the December quarter.

Any top three stocks which you think are good breakout buys as we saw a sharp recovery in the week gone by?

Here is a list of top three stocks fundamentally strong stocks for buy on dips:

L&T: Buy | Target: Rs 1,450 | Stop Loss: Rs 1,250

We are expecting that budget mechanisms will bring optimism in infrastructure stocks. The centre’s push towards infrastructure — road construction, electrification of railways and high-speed rail, airport expansion, and smart cities — will set the path of growth for infra major L&T’s order flow.

Good revenue visibility along with the company’s diversified business and strong financials also support buying the stock. The company has also added several private players, alongside a few overseas ones, to its client base.

We recommend buying L&T at Rs 1,325 and keep a stop loss at Rs 1,250 on closing basis with a target of Rs 1,450.

Kotak Mahindra Bank: Buy| Target: Rs 1765| Stop Loss: Rs 1635

Kotak’s loan book has grown at a CAGR of 27 percent over FY09 – FY19. Consolidated earnings growth CAGR during the same period (FY09-19) was at 27 percent.

The prudence of its risk management is visible in its lower NPA, which means its net NPA ratio has been at 0.87 percent during FY09-FY19 (one of the lowest in the industry).

Over the last five years, while other banks have struggled with asset quality issues in their corporate loan book, Kotak’s corporate loan book has grown at more than 20 percent CAGR in a challenging environment.

We recommend buying Kotak Bank at Rs 1685 and keep a stop loss at Rs 1,635 on closing basis with a target of Rs 1765.

Titan Company Ltd: Buy | Target: Rs 1,255 | Stop Loss: Rs 1,130

One of the major organized players in the jewellery sector may take part in growth by demand-driven factors. Jewellery division is witnessing muted sales due to weak demand in line with the industry.

Sales were good during the Akshaya Tritiya period. To get back on its growth track, Tanishq launched “Lavanyam” (a range of traditional South Indian jewellery) during the quarter and the watches segment is in growth momentum.

We recommend buying Titan Company at Rs 1,171 and keep a stop loss at Rs 1,130 on closing basis with a target of Rs 1,255.

Q) Why have small & midcaps stocks started performing recently -- is it the FII flows, or pre-budget euphoria catching up?

A) The Nifty50 is getting significantly diverged from our slow-growth economy. From Nifty50, we can see nearly 30 companies (nearly 60% of Nifty stocks) – are from balance sheets heavy sectors like power, construction, metals, telecom, real estate and oil & gas whose 10-year return is less than 10%.

As these heavy sectors are not performing well to give attractive returns to investors, the smart money is trying to flow to smart midcap and smallcap stocks because less room is left for investors in largecap stocks.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Jan 13, 2020 12:38 pm