All analysts who participated in a Moneycontrol poll favoured a repo rate cut by RBI in October.
The biggest ever two-day 3,000 points Sensex rally that came on the back of corporate tax cuts and other measures announced by the government took both investors and traders by surprise.
And, the party is far from over. In a poll conducted by Moneycontrol, 12 of the 19 analysts say they expect the Sensex and the Nifty to hit fresh record highs by Diwali.
Asked about likely levels for the benchmark indices by the Budget 2020, expected in February, a majority of them see the Sensex in the range of 40,000-41,000 (1,000-2,000 points above current levels) and the Nifty around 12,100-13,500, pretty much ahead of earlier highs.
The Nifty hit a record high of 12,103.05 on June 3 and the Sensex 40,312.07 on June 4 this year.
For the poll, Moneycontrol asked the analysts about the likely market trend, whether the measures were enough, and also the strategy with regard to mid and smallcap stocks.
Finance Minister Nirmala Sitharaman on September 20 slashed corporate tax rate to 25 percent from 35 percent (inclusive of surcharge and cess) and minimum alternate tax to 15 percent from 18.5 percent. The minister also said new companies incorporated on or after October 1, 2019 and beginning production by March 2023 will pay a lowered tax of 17 percent.
The government did away with the additional surcharge on capital gains for all classes of investors, which was announced in the budget and was one of the reasons for FII outflow since July.
These bold moves, variously described as a pre-Diwali gift, a surgical strike on bears and a mini-budget, lifted sentiment, as was evident from the highs seen in the market.
The measures will drive companies’ earnings, as they will retain the money to deploy for capex and operating performance or pass on the benefits to consumers, which will help the economy grow, the analysts say.
The upside seen on two days was largely restricted to 4/5th stocks and not across the BSE 500, Midcap, Nifty50 indices. Also, the biggest ever two-day rally in benchmarks was driven by a few stocks.
For instance, top 10 Nifty stocks gained 15-22 percent in the two-day rally. These include Eicher Motors, Bajaj Finance, BPCL, IndusInd Bank, Britannia, Asian Paints and Maruti but the key drivers of the gains were L&T (up 18 percent), ICICI Bank (up 15 percent) and HDFC Bank (14 percent).
Fifteen of the 19 analysts expect recovery in mid and smallcaps. They find valuations attractive given the government move, expected earnings growth and the sharp fall seen in the last 18 months.
In fact, the BSE Midcap and Smallcap indices (before the two-day rally) had corrected 23 percent and 32 percent, respectively, since February 2018. The Sensex gained half a percent in the same period, reflecting negative sentiment and weak earnings, virtually calling for a move from the government to improve the same.
Most analysts favour investing in quality mid-smallcaps, with the hope that they would give hefty returns in the next one to three years.
Analysts are divided when asked if these cuts, which will cost the government Rs 1.45 lakh crore annually, were enough to revive the economy. Seven of them say the move will benefit in medium to long term. Nine analysts don’t think it is enough while two of opted for can’t say.
Fourteen of the 19 analysts expect more steps from the government to bring growth back on track.
All the analysts favour a repo rate cut by the RBI in its monetary policy review in the first week of October.
A majority of analysts think that the rupee will depreciate and hover around 71.50-72 against the US dollar by Budget 2020. Three of them see the currency at 69.50-70 a dollar, while other five expect it to be in the 70.50-71 a dollar range.
Helped by the government measures, the rupee has shown a recovery of 150 paise from 72.39 a dollar to 70.87 a dollar, but crude volatility, uncertainty over global trade war and fiscal deficit concerns may take the currency back to 72 levels.The list of analysts who participated in Moneycontrol poll:
- Siddhartha Khemka, Head-Retail Research, Motilal Oswal Financial Services
- Rusmik Oza, Head of Fundamental Research, Kotak Securities
- A.K.Prabhakar, Head - Research, IDBI Capital Markets & Securities Ltd
- Naveen Kulkarni, Head of Research, Reliance Securities
- Narendra Solanki, Head Fundamental Research (Investment Services) - AVP Equity Research, Anand Rathi Shares & Stock Brokers
- Amnish Aggarwal, Head of Research, Prabhudas Lilladher
- VK Sharma, Head PCG & Capital Markets Strategy, HDFC Securities
- Rajiv Singh, CEO, Karvy Stock Broking
- Ajit Mishra, Vice President Research, Religare Broking
- Jyoti Roy, DVP Equity Strategist, Angel Broking
- Vineeta Sharma, Head of Research, Narnolia Financial Advisors
- Jimeet Modi, Founder and CEO, SAMCO Securities
- Gaurav Garg, Head of Research, CapitalVia Global Research Limited -Investment Advisor
- Sameer Kalra, Founder & President (Research), Target Investing
- Romesh Tiwari, Head of Research, CapitalAim
- Emkay Wealth Management
- Vijay Kuppa, Co-founder, Orowealth
- Vinod Nair, Head of Research, Geojit Financial Services
- Vinod Karki, Head – Strategy, ICICI Securities