We are of the view that earnings growth could even fall to 10 percent to 11 percent leading to costlier valuation for FY20 in terms of price to earnings ratio.
In the coming quarter, the numbers would come in line with expectations and topline should improve. Keeping that in mind, we can expect 11,500 on the downside and 12,600 on the higher side, said Ashish Nanda, EVP & Business Head - PCG, Commodities and Currency Business, Kotak Securities in an exclusive interview to Moneycontrol's Sunil Shankar Matkar.
Q: What do you expect from the market in 2020?
A: The market outlook for 2020 is bright on expectations of sustainable recovery. In real terms, the Indian economy is facing slowdown since 2011. The government and RBI have taken several hard and soft measures towards the same. Clean up of bank's books and infusion of sufficient liquidity in the banking system would result in more rate cuts, as well as, rate transmission to borrowers.
The decision of disinvesting stake in a number of PSUs would help to come down or control the fiscal deficit. Increased focus on real estate and housing sector would be positive for the broader economy.
Corporate tax cut boosts competitiveness and attracts foreign direct investments. A cut in income tax in the upcoming Union Budget would help revive consumption. In brief, number of positive announcements are in pipeline but the level of pessimism in investors currently is at its peak as well.
There are several highlights of the current year but I am going to highlight on few of them which are going to change the face of the Indian economy.
First is political stability for the next five years. Second, cut in corporate taxes. Third, consistent cut in interest rates and directives to transmit the same. Fourth is capital infusion in PSU banks and their consolidation. Fifth and final is Auto sales numbers that have shown signs of recovery from lows.
Q: What are the major challenges currently faced by the Indian market?
A: The Indian market is facing issues on real growth versus prediction on growth. Also, outflows from FIIs is a major concern. Currency, which was at 68.50 went to 72.50 in a very short span of time. The liquidity crunch has also impacted capital intensive sectors like real estate.
Job cuts at large levels from labour-intensive companies in infrastructure, real estate and metal sectors would also be a big concern as it slows down consumption. There has hardly been any spending on the capex side from private and public companies in the last few years, and GDP was driven by growth in consumption. Now, if consumption slows down, it would pose a big challenge for India to maintain the prediction of a high GDP growth rate. The household savings rate, which was 23 percent at one point, has now fallen to 17 percent, increasing pressure on sectors like real estate and home appliances.
Q: Where do you see investment opportunities in the current time?
A: We need mega announcements on the capital spending side. Infrastructure stimulus could be the best option for the government to exercise. Based on the above observations, we can see opportunities in infrastructure, capital goods and power distribution companies.
Several NFO's on small and midcaps are seen, which is an indication of accumulation or attractive valuation in such themes. Quality midcap companies with low debt burden should also outperform in coming times.
Q: Going by fundamentals do you think the Indian market is trading at fair value?
A: I think it is still a bit higher compared to the fair value. The reason for it is that the majority of the government and economy related announcements lined up in the near term. Government is addressing issues faced by industries, which is positive in the long run. We were expecting growth of 15 percent in Q2 results. We are of the view that this number could even fall to 10 percent to 11 percent leading to costlier valuation for FY20 in terms of price to earnings ratio.
Q: What will be the likely trading range for Nifty for the next quarter?
A: In the coming quarter, the numbers would come in line with expectations and topline should improve. Keeping that in mind, we can expect 11,500 on the downside and 12,600 on the higher side.
Q: What are the best portfolios to invest in present market conditions?
A: As the market is still below all-time highs, we should focus on NiftyBees at major dips in the market and Nifty Next50 for adding midcap stocks to our portfolio. The risk takers should apply for ETFS which government is introducing every 6-12 months. If someone has to take a view of the next 12 to 18 months, then one should look to add Bank Bees. For mutual funds, our advice is to add growth fund of big and sound names of the industry.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.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.