UBS Nifty base case, upside and downside scenarios are 10,500, 11,900, and 8,800 respectively which implies unattractive risk-reward at the current level.
Will Prime Minister Modi win the next round of general election? Well, for that we might have to wait for the actual results but investors have assigned a very high probability of Modi 2.0, UBS said in a report.
Modi's reform agenda has aided investors in ignoring earnings disappointments over the past four years. Thus, his re-election as Prime Minister with a single-party majority underpins the market's hopes, reflected in rich multiples, it said.
However, a change in such expectations by investors through 2018 could result in lower multiples. Historically, the Nifty has reacted sharply around elections in the short term, the report highlighted.
In a few cases, the move was even visible one year prior to and post an election. USDINR has moved more when closer to the date (3 months before) and less than 12 months ahead of the event; while USDINR volume also unsurprisingly moved higher closer to the event.
UBS Nifty base case, upside and downside scenarios are 10,500, 11,900, and 8,800 respectively which implies unattractive risk-reward at the current level, even more so if uncertainty rises around the outcome and timing of the election.
Investors should focus more on the individual stocks rather than looking at the index. Top preferred stocks include names like Bank of Baroda, Bharti Airtel, BPCL, Cipla, HDFC Bank, ICICI Bank, ITC, Motherson Sumi, TCS, Titan Company etc. among others.
The global investment bank is positive on Auto Parts, IT services, Oil & Gas, Private Bank, property, and Telecom & Media.
A weaker portfolio inflow could put the rupee under pressure, said the UBS report. The rupee needs a larger amount of portfolio inflow to stay afloat compared with 12 months ago.
It has been driven by sharp deterioration in the basic balance from 1.3 percent a year ago to close to zero lately. The widest trade deficit (in January) since 2013 is not helping the cause. “We now think USD-INR could trade around 65 in the next 3 months,” said the report.