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Last Updated : Sep 27, 2018 10:02 AM IST | Source: Moneycontrol.com

Rupee could touch 74-75/USD, but the pair will settle around 70 in 6-9 months: AUM Capital

Shreyansh N Mehta of AUM Capital Market said rise in India's growth trajectory is expected to boost market sentiment and thus with the bullish view we hope the market will soon cross the 12,000 milestone.

Sunil Shankar Matkar
 
 
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We find that there is a strong support at 10,800 and Nifty should maintain this level but if breached, 10,500 will be next support level. On the upside, 11,500 is the resistance level and looking at the current global and domestic scenario, Nifty will hover around 11,000-mark, said Shreyansh N Mehta, Manager Equity Research at AUM Capital Market in an interview to Moneycontrol's Sunil Shankar Matkar.

Do you think we are near bottom in terms of correction? What is your overall view for the rest of FY19?

Indian equity market remained highly volatile since February 2018 triggered by uncertainty around the globe. Recently Nifty tested its all-time high crossing 11,750 mark and outperforming all global major markets.

It was mainly due to better-than-expected Q1 results and normal monsoon but soon a correction of around 400 points was noticed and again a bounce back is observed. This movement is mainly due to the weaker Indian rupee against US dollar, rising of crude prices and global trade war.

We find that there is a strong support at 10,800 and Nifty should maintain this level but if breached, 10,500 will be next support level. On the upside, 11,500 is the resistance level and looking at the current global and domestic scenario, Nifty will hover around 11,000-mark.

Geopolitical uncertainties might escalate further which will keep the market volatile but the domestic picture looks encouraging.

Recovery in earning is expected to gather pace in FY19 on the back of the government focus on affordable housing and higher MSP for farm produce.

Moreover, rise in India's growth trajectory is expected to boost market sentiment and thus with the bullish view we hope the market will soon cross the 12,000 milestone.

Is rupee a bigger risk than crude and trade war tensions? Will weak rupee have major impact on CAD?

The Indian rupee has become Asia's worst performer losing over 13 percent of its value in 2018 breaching new highs against the dollar on rising crude oil prices and falling emerging market currencies and there seems to be no end to it.

Though, the Indian currency recovered some lost ground on suspected dollar sales by the Reserve Bank of India but there are still dark clouds in the sky as fears of escalating trade war could further hurt the global market sentiments and growth.

Not to forget, the massive liquidation by the foreign investors and political uncertainty around 2019 general elections in India will further put pressure on rupee. So, as of now, rupee will maintain this downward trend approaching fast towards 74–75 levels and will create a threat on the economy as a whole.

But going forward, in a span of 6-9 months, we might again see rupee trading around 70.

Rise in the global oil prices, when coupled with a sharp depreciation in the rupee and other macroeconomic events, creates a double blow for the CAD which increased to a four-quarter high. Pressure on the currency spikes the country’s import bill even though the volume of import may remain the same and thus India's CAD might overshoot Centre’s estimates.

FIIs have been sellers in recent times. Do you think the momentum is likely to continue?

FIIs have been net sellers, not only in India but across the whole emerging economies. If we look at the trend of FIIs and DIIs ownership in last few years, it's clear that the DIIs are becoming significant players in the Indian market and making up for the loss.

Nonetheless, despite the volatility, India is believed to be a preferred investment destination for investors on the back of implementation of government reforms.

After two rate hikes, do you expect the RBI to go for another hike or more than one hike by FY19?

Further headwinds such as state and centre elections due in 2018-19, a widening CAD, expected rate hikes by the US Federal Reserve, rising crude oil prices, weak investor sentiment, elevated bond yields and depreciating rupee may lead to one more rate hike this year.

Is it time to invest in IT and pharma stocks?

Depreciating rupee will benefit export-oriented companies which earn most of their revenues in US dollar. Thus, majorly IT and pharma sectors are likely to see boosting their margins.

We recommend keeping the stocks of both the sectors in the portfolio as a defensive measure, but rather than going sector-specific, one should be more focused on individual companies.

What are the top five picks for next one year?

We recommend to buy the following stocks with an upside potential of around 10-15 percent from the current level with an investment horizon of 9-12 months.

Balkrishna Industries

Balkrishna Industries (BKIL) is a leading manufacturer in the off-highway tyres. The management's consistent effort to lower debt through internal accruals should help in increasing the margins.

BKIL is also exploring other related segments such as earthmovers & mining tyres to push the top line growth further. With gradual improvement in replacement demand and improved prospects of the user industry like mining and construction, the company is poised to grow faster than the industry. Deleveraging of balance sheet, increased capacity, lower costs, healthy return ratios justify its valuations when compared to other tyre stocks.

Bandhan Bank

Bandhan Bank's distribution network is particularly strong and largest in East and Northeast India. Its unique business model with immense growth potential in microfinance segment and expansion into other retail and SME lending provides attractive and profitable opportunities.

Its extensive & low-cost distribution network with enhancement in digital platform, superior return ratios, pristine asset quality, improving funding and increasing average loan size makes Bandhan an outlier in the microfinance segment.

CESC

CESC recently received NCLT's approval for demerger of the company into four different entities. Its retail business under the Spencer's brand is EBIDTA positive and it expects cash break-even in coming few quarters.

Many new launches in retail segment along with expansion plans through acquisitions, residential projects and plant set up program in the books would boost up the growth and numbers. Further, the demerger would drive value through unlocking of the potential of the Distribution and Retail businesses.

ITC

It is believed that the expected revival in rural economy, increased realisation of cigarettes and improving profitability of hotels segment would aid healthy growth for ITC.

Moreover, the company’s exploration towards other sectors and continuous R&D in innovative launches of the existing FMCG products would provide a boost in the numbers.

Jindal Steel and Power

Jindal Steel and Power is driving an ambitious global expansion plan which includes expanding its core areas and diversifying into new businesses.

JSPL's domestic increase in steel and power production, reducing debt, curtailed working capital, expanding capacity at Angul and Raigarh plants and scope for further cost reduction with replacement of thermal coal with pet coke in coal gasifiers would ramp up its production along with better cost of production.

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.
First Published on Sep 27, 2018 10:01 am
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