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Budget 2018
Jan 01, 2018 11:19 AM IST | Source: Moneycontrol.com

Nifty target near 11,500-11,900 by Dec; 5 stocks that can give up to 43% return

We believe this Budget, government with focus more on sectors which are the base of economic growth interns of employment, raising income levels, infrastructure and raising spending capex areas.

 
 
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We place our Nifty target near 11,500 -11,900 by December 2018, said Prashanth Tapse, Associate Vice President (Research), Mehta Equities in an interview to Moneycontrol’s Sunil Shankar Matkar. He sees multiple events to trigger markets in 2018 including Budget, state elections and earnings. Here's an excerpt from that interview:

2017 has been a great year for Indian equities as the market grew by around 25 percent. Do you see same kind of rally in 2018 also and what is your Nifty target for December 2018?

We expect the healthy run-up in the global equity markets, including India, seen this year to continue in 2018 with average of more than 18-20 percent return in India. This is all because domestic money dictating the growth trend and expect to continue going forward.

Indian markets are much more in control of their own destiny wherein historically FIIs were the price/trend-setters. We see year 2018 has much more to say on election saga, usually the main reason for volatility. Barring to the election outcome the domestic inflow and government reforming action will keep markets on northward movement.

On over basis market is bullish on the current government focused towards increase in spending. We see growth momentum improves in the year prior to the elections, a trend which is likely to play out in this cycle as well. Based on the facts and assumption we see Nifty target near 11,500 -11,900 on or before December 2018.

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What are the next key events (or themes) to watch out for the year 2018? Kindly explain events or themes in 100-150 words if possible. Will those events drive the market up or down?

We see multiple events to trigger 2018 outlook likewise Budget, State Elections and earning hiccups.

1) Union Budget 2018 holds special significance being the first Budget to be presented in the post-GST era. While we expect it would be a “POPULIST BUDGET” ahead of a stream of assembly elections next year, the Budget may see more focus on common man dreamer’s Budget like common Man’s Tax revision, high allocation to agriculture sector, spending more on infra capex development and emphasis on defence spending which will make generate energy for future growth.

2) Elections would be the key volatile theme for 2018, after Budget the battle starts from congress ruled Karnataka which will raise market sentiments and any outcome would only disturb short lived trends while strong confidence in equity performance will be overruled.

3) We expect solid earnings growth delivery in the next year and the following year and see that as a credible backdrop for India to continue to perform well. Earning performance will be supported by pick-up in investment and easing of financial conditions.

The domestic liquidity supported markets in the year 2017. Will that liquidity support continue in 2018 as well or do you see some tapering of flows? What is your view on FIIs flow?

Domestic money is dictating the growth trend and expects this to continue going forward. After Modi took charge since then the investor confidence indicator has only raised upwards. We are seeing a positive correlation between mutual fund equity inflows and stock market performance which was not the case a couple of years ago.

The upsurge in mutual fund equity flows has given a new connotation to Indian equity markets. Considering the huge MF inflow on month-on-month basis which is supporting markets for any hiccups, we believe demonetisation, GST, digitalisation and the increasing preference for equity as an asset class have emerged as the mega trends in India.

FIIs have deep pockets and they are bullish on Indian markets. They actually act based on the performance of the economy, corporate earnings and market momentum. We believe Indian story can’t be ignored if they want to earn the best in asset class returns in next 2 years.

India Inc raised over USD 11 billion through IPOs in 2017. Will 2018 be another golden year of IPOs?

In the recent times, IPO’s has been in high demand. 2017 was the golden year for all the companies which raised money through this route and a few of the IPOs have tripled investor wealth in 2017 alone.

We expect the same trend to continue in 2018 as various government policies are favouring to facilitate businesses and creating opportunity to garner funds from the capital market by issuing shares.

Also, a surge in the secondary market has encouraged many companies to go to public in search of better valuations. Undoubtedly, the IPO market has rewarded investors with healthy returns and is expected that it would continue to perform in 2018 as well.

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?

Yes, September quarter earnings was far better-than-expected as market was anticipating the demonetization and GST effect to rerate earnings expectations. We see there is hope of a better second half earnings growth with low base created by demonetisation/GST action.

Nevertheless, risks remain for expectations of a lower double digit earnings growth for FY18 as the same has been nearly flat in the first half and entire burden has now shifted to second half. On overall basis earnings growth will come from Q3, which will drive markets.

The next big event the market will watch out for will be Union Budget. 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?

Budget 2018 would be the key game changer event to government keeping in mind the state elections and as well as the 2019 Lok Sabha election.

Key expectations from POPULIST BUDGET would be more focused on creating employment and employment-related funding, rural population and farmers, capital expenditure on infrastructure as government next year will be on the momentum of infrastructure creation.

After Gujarat elections saga, the government will be more alert in handing the forth coming elections. We expect this upcoming Budget will also keep elections in mind and tactically present some reforms or policy shift which would affect the election outcome.

The BJP may be optimistic about its prospects in the Karnataka assembly elections after winning the Gujarat and Himachal Pradesh, hence we are highly optimistic on the Modi Govt to manage the elections and expect government would now be emboldened to go full throttle on making policy / reforms which are believed to be the bane of the Indian economy.

Top five sectors which you think stand to gain the most from the upcoming Budget 2018?

We believe this Budget, government with focus more on sectors which are the base of economic growth interns of employment, raising income levels, infrastructure and raising spending capex areas.

Sectors we like are agriculture, defence, oil & gas, power and banking. These sectors are growing well and would continue to be on the growth trajectory.

As we moved to 2018, what are your 5 best picks for 2018?

Chennai Petroleum | CMP - Rs 421 | Target - Rs 600 | Upside – 42.5%

Chennai Petroleum Corporation (CPCL) is a subsidiary of Indian Oil Corporation and is one of the premier Public Sector Undertaking engaged in the business of crude oil refining and in the production of fuel products, lubricants and petrochemical feed stocks.

Investment rationale:
• Resid upgradation project at Manali refinery expected to improve GRM
• Mega expansion on cards: New 9mntpa refinery at Cauvery Basin Refinery
• Building of Re gasification LNG terminal project Dharma Port Gas Facility

• Laid down a new 42inch diameter crude oil pipeline from Chennai Port Trust to Manali Refinery which will replace their existing 45 years old 30 inch crude oil pipeline.

Zen Technologies | CMP - Rs 147 | Target - Rs 200 | Upside – 36%

Zen Technologies is a three decade old company involved in designing, developing and manufacturing of world class training solutions. It is a leader in providing training solutions that include defence simulators which primarily focuses on security forces including military, paramilitry, state police force etc.

Investment rationale:
• Make in India program.
• Strong track record in winning bids.
• Defence sector offers good opportunity.

• Entry Barriers high for new players.

Atul Auto : CMP - Rs 454 | Target - Rs 552 | Upside – 21.6%

Atul Auto (ATUL) is a five decade old three-wheeler manufacturer of auto rickshaws, pick-up vans and chassis of passenger vehicles based in Gujarat.

ATUL continues to be number 1 player in Gujarat with 35 percent sales coming from the state. Currently, company has 320 touch points which includes 200 primary dealers and 120 sub-dealers.

Investment rationale:
• Caters to diverse customer base in the CARGO & PASSENGER segment
• Scale of production rises, benefits of operating leverage would start kicking in as ATUL’s bargaining power with suppliers would rise.
• Increasing its distribution channels with the addition of 20-25 dealers by the end of FY (currently there are around 200 primary and 120 secondary dealers).
• Focus on export Market.

• Introduction of E-vehicle.

Jain irrigation | CMP - Rs 126 | Target - Rs 160+ | Upside – 27%

Jain Irrigation Systems is a diversified entity with global presence and having 30 manufacturing bases spread over four continents. Products are supplied to 126 countries with able assistance from 6700 dealers and distributors worldwide and have reached over 4.5 million farmers.

The Maharashtra-based Jain Irrigation makes micro- irrigation systems, PVC and HDPE pipes, plastic sheets and agro-processed products, among others.

Investment rationale:
• The second largest Micro-Irrigation company in the world.
• Enlarged the company's credentials for upcoming agricultural and irrigation infrastructure upgrade in the country
• Successfully commissioned many micro- irrigation projects on turnkey basis in Maharashtra, Karnataka, Gujarat, Himachal Pradesh and others.

• The micro irrigation part where once again the government subsidies will help him to do much better

Aditya Birla Capital | CMP - Rs 184 | Target - Rs 250 | Upside – 36%

Aditya Birla Capital Limited (ABCL) is amongst the largest financial services provider in India. It has got strong presence across protection, investment and savings business.

Its presence includes in life insurance, asset management, private equity, corporate lending, structured finance, general insurance broking, wealth management, equity, currency and commodity broking, online personal finance management, housing finance, pension fund management and health insurance businesses.

Investment rationale:
• Monetisation of its business
• One stop solution for all the money requirements of the people• Banking on Banca tie-up for life insurance

India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for live Budget 2018 news, views and analyses.
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