Within the financial stocks, private sector banks would continue their outperformance, while metal stocks could see a sustained upmove in case the ongoing global trade war comes to a standstill, Dinesh Thakkar – CMD, Tradebulls Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Q. What is your outlook for the year 2020? 2019 is likely to end with gains of over 10 percent, do you think we could do better in next year?
A. The year 2019 was remarkable, full of excitement, and crisis at the same time. Our economy witnessed the collapse of another airline company, a renowned private sector bank, the NBFC sector crisis, among other events.On the other hand, reforms, and the announcement of a corporate tax cut did provide the much-needed stimulus to sustain the windfall.Despite all these factors, our index managed to gain at over a 10 percent run-rate, which serves as an ideal characteristic scenario of a classical bull wave in its maturation stage. We expect the index to witness a modest follow-through movement, but could remain restricted within its last year gains.Q. Do you have a Sensex or Nifty December-end target for 2020? If yes, what is the basis of your assessment?
A. As most of the key economic indicators remain weak, and valuations for the quality, super bullish names remain stretched, we have a conservative target of a maximum of around 12,450 to 12,670 in case of any movement under euphoria.
The price expectation is based upon a basic price and pattern analysis as we believe that the index is trending up within its final 5th wave structure, which could witness termination around the aforesaid zone.Q. What are your expectations from the Budget? Do you think we could see a personal tax cut in the coming year? If yes, will it be a major booster for equity markets?
A. The Finance Ministry has already emphasized that they remain focused on reforms to boost the country’s economy, and hinted towards a possible change in the personal income tax structure of individuals to encourage spending.
As they have changed the GST structure, they could tinker with the personal tax slab too, and it could be an expected positive sentiment booster for the equity markets, in the long run, to further boost consumption.
In recent history, our government has already reduced the corporate tax to boost overall economic growth.
But on the other hand, rising inflation and a slowdown in growth parameters have a rather constricted fiscal space of the government. Hence putting money in the hands of the consumer by a cut in the income tax may not materialize as expected.Q. Which are the sectors that are likely to hog the limelight in 2020 and why?
A. The government's focus on disinvestment is expected to continue to bridge the gap of widening fiscal deficit, and non-banking PSU stocks would continue to do well in the coming year as well.
Within financials, private sector banks would continue their outperformance, while metals could see a sustained up-move in case the ongoing global trade war comes to a standstill.Q. The top 5 stocks which you think are available at attractive valuations and can still be considered a buy on dips?
A. BPCL, Container Corp, HDFC Bank, Escorts, and TCS.Q. What should be the investment philosophy for investors in the year 2020?
A. The long-term outlook for India still looks positive, so investors should look at the long-term view rather than trying to time the market.
Historically, equity investment in the long term has given good consistent returns, and investors should invest in quality stocks and exercise patience.Q. Do you think growth has bottomed out in the September quarter? And, the likely outperformers could be the small and midcaps in 2020 compared to largecaps?
A. It would be difficult to conclude that growth has bottomed out in the September quarter as extremely weak demand conditions engender a lurking fear of continued weakness in economic activity.
Low investment confidence still prevails as spending in the second quarter was constrained. Banks and NBFCs are still not lending, but some improvement is seen in rural areas which have shown signs of mild recovery thanks to improved cash flows for farmers in few states.
Investors are not confident in midcaps and smallcaps due to slowdown and are focusing on largecaps, which is why they have outperformed.
The perception of investors will change if they see more signs of green shoots in the economy. This could possibly narrow down the ongoing divergence gap between largecaps and small/midcaps in 2020.Q. Do you think earnings growth will start looking up from FY21?
A. Earnings growth will primarily depend on the US-China trade war and global sentiment. Domestically, the government has tried to push economic growth by cutting corporate tax, but the global slowdown and looming uncertainty due to trade wars have overshadowed structural reforms by the government.
The Reserve Bank of India has cut rates for five consecutive times and has provided a lot more fiscal stimulus than is required for the time of the hour.
But, still, the Indian economy continues to struggle with its uptick in growth. We remain mildly optimistic about earnings growth recovery from FY21 too.Q. What are your key takeaways or lessons for investors for the year 2019?
A. Quality comes first, and ‘Quality never comes cheap’. Despite the higher PE base for the indices and most of the quality large and mid-size companies, investors have gone ahead to retain and add more to their folios.
The divergence between the bullish and super bullish stocks has resulted in a better yield and greater alpha for the bold.
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