The only threat to the domestic investors is if there is no 2nd term for PM Modi which will definitely have a knee jerk reaction to the market.
The market trend is positive until the election result is out, as a result, Nifty will touch 12,000 mark prior to the outcome of elections results, and if the current ruling party wins the elections with majority again, then, Nifty will touch 13,000 mark during the year, said Foram Parekh, Fundamental Analyst – Equity, Indiabulls Ventures in an interview with Moneycontrol's Sunil Shankar Matkar.
Q: Is there reason for domestic investors to bother about likely global growth slowdown and Brexit issues and why?
A: No, we do not see there is any reason for the domestic investors to worry on these issues. Global growth has surely slowed down and IMF had also slashed the global economic growth forecast from 3.7 percent from 3.5 percent for 2019.
Despite this, both World Bank and IMF have kept the forecast unchanged for US at 2.5 percent for 2018.
Until the new Brexit draft is accepted in June 2019, companies which have operations in the UK shall not have any concerns.
Economic slowdown of China is a blessing in disguise for the Indian Economy. Hence, the global economic slowdown is not much of a threat to domestic investors.
Internal consumption of India is also going strong ‘on a higher base rate.’ The only threat to the domestic investors is if there is no 2nd term for PM Modi which will definitely have a knee jerk reaction to the market.
Q: CLSA believes gross fixed capital formation ratio has now bottomed out and a housing recovery is critical for a broad-based capex recovery. Do you feel the realty sector will be back in action by end of 2019?
A: Yes. There are a lot of factors which have worked in favour of the sector like the slashing of the GST rates, falling interest rates and dovish commentary by the RBI governor.
The valuations of the entire sector are very attractive and have a low-risk reward ratio. The key actions in the sector, like pick up in volume growth, stable housing prices etc. will augur in inventory level clean up.
Within the sector, Oberoi Realty has few projects coming in the suburbs of Mumbai and coupled with a healthy balance sheet augurs a safe buy.
Real Estate comeback will indirectly lead to a pick-up in the housing finance companies (HFCs) like Can Fin Homes and HDFC.
Q: Do you think the slowdown in domestic inflows in February is a risk even though FIIs put in over Rs 30,000 crore since February? What is your outlook on fund flows?
A: No, we do not see the lack of participation from the domestic institutional investors (DIIs) as a threat to the market outlook. DIIs have been buying continuously from 2017 which makes sense to do some profit booking at higher levels.
But FII buying has picked up immensely and we do not see any stop to it in the near term. Till date, FIIs have made more than Rs 40,000 crore worth buying in a span of just 2 months. If PM Modi forms the government again, FIIs will continue to be net buyers in the market from hereon for the rest of the year.
Currently, we have a twin benefit of rupee appreciation and positive sentiments towards the current government. Also, the international markets are grappling with their own issues, which makes India more attractive than any other global counterpart.
After the clarity on the election results and earnings pick up, we feel, FIIs will do historic investments this year.
Q: Pledging of shares was one of the reasons for market fall in September-October 2018. How do you look at the issue and how must investors deal with it?
A: A pledging of shares by the promoters is risky but it is not the only risk that investors should ponder upon. In the case of Zee Entertainment, 24 percent of the total shareholding is pledged, which is definitely risky.
But, there are companies like Asian Paints whose shares are also pledged but this is only 6 percent of the total number of shares.
As a company starts growing, the management will have to evaluate various sources of funding, as a result, the phenomena ‘shares pledged’ should not be the key thing to evaluate risk.
If the shares are pledged by more than 20 percent of the total shareholding pattern, we would recommend skipping that company because during bear markets, these stocks tend to become risky.
Q: Analysts expect over 20 percent growth in FY20 earnings. Why is there increasing focus on FY20 and do earnings matter at a time when there is ample liquidity thanks to stimulus in ECB and China?
A: Earnings matter even during such times. Companies' earnings justify the movement of Nifty, hence it should be tracked.
Quarter on quarter, there is earnings recovery and with stable macros and the slew of measures introduced in the interim budget, it becomes essential to watch how it will impact the companies.
Every rally ends quickly if there is no structural improvement in the corporate earnings and if there is earnings growth then stocks will continue to rally despite the bad market.
For example, last year markets did not sustain any up-move and mid-caps were butchered in this mayhem but midcap stocks like Bata India and Aditya Birla Fashion continued to make new highs during the same period on account of its stupendous earnings growth.
If there is news based or liquidity driven rally then the life span of those kinds of rallies is short lived as compared to the rallies which are supported by earnings growth.
Q: What is your outlook on the market in view of the rally over the last month? Is it time to add high beta stocks in the portfolio?
A: The positive sentiments will continue in the markets throughout the year. The current rally in the market is discounting sweeping win of the current government.
The trend is very positive until the election result is out. Nifty will touch 12,000 mark prior to the outcome of elections results.
If the current ruling party wins the elections, Nifty will touch 13,000 mark during the year on account of earnings recovery, lower interest rates and a stable government.
Since high beta stocks have witnessed huge selloff last year hence the valuation gap between the low beta stocks and high beta stocks has widened.
There are companies like DB Corp, Birla Corp, KEI Industries, which are high beta stocks and are trading at attractive valuations. Earnings of these companies have also improved and macros are also favouring the high beta companies, hence this is the time to aggressively built position in such stocks.
Q: Have you reduced your exposure to IT stocks after the strong run in 2018 and what are the expectations in 2019?
A: Most of the IT companies reported good numbers in a seasonally weak quarter and their digital revenue space will continue to grow well. The only headwind in the sector is the rupee factor which will have a hit on their margins.
Currently, the rupee is at 7-month high and this trend will continue atleast till the outcome of the election result. But if other factors like order wins, digital revenue growth, utilisation rate, attrition rate are favorable over margins pressure then we would recommend IT stocks again post Q4 results. Till then, we are not recommending IT stocks.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.