Going forward, we expect the underperformance would narrow down as many quality midcaps and smallcap companies are available at reasonable valuations
Considering the current market scenario, it would be safer to invest in consumer and rural centric stocks like Dabur India, Godrej Consumer and Rallis India, Ajit Mishra Vice President, Research, Religare Broking Ltd, said in an interview with Moneycontrol’s Kshitij Anand.Q) Another week of the muted performance from Indian market where Nifty broke below crucial support levels in a matter of just two days. Disappointment from FM comments weighed on markets. What are the factors which are weighing on Indian markets?
A) The recent decline in Nifty is reflecting muted global cues and weak domestic sentiments. Post budget, markets witnessed correction as there were concerns that foreign portfolio investors (FPIs) structured as an association of persons (AOPs) or trust will have to pay the new increased tax surcharge for income above Rs 2 crore.
Also, no big bang announcement to stimulate economic growth has raised fresh concerns over unemployment and revival in public/private capex, which may delay the rebound in the corporate earnings.
The earnings season has been mixed so far, given the headwinds faced in their respective sectors with an on-going economic slowdown and currency appreciation.
Although monsoon has shown considerable growth in the last one-two weeks, the cumulative deficit is still around 16 percent, which has also impacted sentiments.
On the global front, geopolitical tensions between US-Iran are having a negative bearing on Indian markets as crude too is witnessing volatility.
A) After the recent plunge, we are now eyeing 11,300 in Nifty and its breakdown could trigger further fall to 11,100 levels. In case of a rebound, 11,540-11,650 would act as hurdles.
A) The underperformance amongst the broader markets is mainly a result of weak domestic sentiments and muted earnings expectations for Q1FY20.
Going forward, given the sharp correction in broader markets over the last 17 months, we expect the underperformance would narrow down as many quality midcaps and smallcap companies are available at reasonable valuations.
However, given the stretched valuation of largecap stocks and the current economic slowdown, a correction in the benchmark indices cannot be ruled out which would drag broader markets further lower.Q) What should be the ideal strategy of traders for the coming week -- wait and watch, or buy the dip?
A) Indications are pointing towards further fall in the benchmark index while stocks may continue to witness volatile swings across the board. We suggest maintaining a negative bias on Nifty and keeping extra caution in the stock selection.Q) Is it time to cheery pick from this market? What are the important factors which investors should watch out for before buying the falling knife?
A) Investors generally prefer investing in stable markets, however political uncertainty, unexciting earnings growth dampens their sentiments and keeps them away from the markets. India, being a consumption-driven and fastest-growing major economy in the world, has always been one of the preferred investment destinations despite its premium valuations.
However, in volatile markets, investors should avoid buying the falling knife and rather focus on fundamentally sound stocks with strong corporate governance, healthy balance sheet, comfortable valuations and good growth prospects.Q) Are there any stocks which could be an attractive investment bet for 1 year or more?
A) Considering the current market scenario, it would be safer to invest in consumer and rural centric stocks like Dabur India, Godrej Consumer, and Rallis India. These are relatively safe investment picks and would offer healthy upside potential in the coming months.Rallis India:
In Indian agriculture, utilization of crop protection and agrochemicals in improving farm productivity is still low. This provides an immense scope for market expansion for Rallis.
It has posted decent numbers in Q1FY20 and is attractively valued at current levels. Further, several growth initiatives undertaken by Rallis and forecast of a normal monsoon this year bodes well for its growth. These factors make it a good long term investment bet at current levels.
Also, the company has posted decent Q1FY20 in-line with our expectations. Going forward, it would strongly invest in its power brands, increase advertisements on digital platforms and focus more on product innovation across categories.
Godrej Consumer (GCPL):
While GCPL’s financial performance over the last three quarters has been subdued, we expect volumes to improve in domestic business, led by an anticipated revival in demand and company’s efforts towards brand building and product innovation.
Further, with new launches and effective marketing initiatives, the growth trajectory could gradually improve in overseas business. The recent correction in the stock price has given a good entry opportunity to long term investors.
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