Abhinav Gupta continues to expect high teens growth in FY19 going forward.
We are still keeping our year end targets intact and will revisit our targets post H1 FY19 earning season. We are estimating 17% earning growth which is our base case, said Abhinav Gupta - President, Capital Markets - Share India Securities Ltd in an interview to Sunil Shankar Matkar.
Q. The market has been rangebound after correcting 10 percent from record highs, Do you believe it is oversold or is more correction on the cards? Have you changed your year-end outlook due to volatility since February? What is your overall outlook?
A. We believe market is currently in consolidation phase and will look on development on trade tariffs and earning results of Q4 FY18 to take momentum from here. Having said that we believe, markets have strong resistance around current levels and valuation parameters for quality stocks look reasonable.
Negatives regarding trade wars are overdone and US should soften its attitude overcoming period in line with its negotiation tactics to start from a position of strength and then soften stand gradually. Volatility will be norm for this year but long term investment approach and stock picking based on investment themes will be suitable rewarded. We are still keeping our year end targets intact ands will revisit our targets post H1 FY19 earning season. We are estimating 17% earning growth which is our base case. Indian elections will surely add to volatility but should keep long term Indian consumption story intact.
Q. What do you suggest to investors - buy on dips or sell on rally?
A. We believe markets at current levels is a buy on dips. Nifty at 10,000 is reasonably prices viz a viz its historical multiples. As market reaches its previous highs we might see increase in volatility again. any lower levels than 10,000 should face strong resistance.
Q. What are the biggest risks for the market on the domestic and global fronts for the next one year? Also, do you see the trade war impact getting over now for Indian market?
A. Current risks in the markets are due to political events - both globally and locally. Overhang of trade war and risk of impact on India is a genuine risk and we need to wait and watch development on these fronts for market t price in the impact. Indian earning season should however deliver finally and we believe consumption theme related stocks - company which derives major chunk of their profits nationally, have visiblregrowth potential and proper balance sheet structure should do well.Globally, central banks are hinting at hardening of interest rates. Do you expect the RBI to go for interest rate hike in the current or next year?
Ans: Inflation concerns in Indian are emerging with backdrop of election, farmer unrest, MSP etc. RBI in its commentary has commentary has continued to maintain hawkish stance. We do anticipate tightening of liquidity with fiscal spend on infrastructure and tight monetary policy but are not expecting rate hike this year.
Q. What are your earnings expectation for Q4 and FY19? Do you think second half FY18 earnings performance will be the base for improvement in FY19 earnings?
A. We expect Q4 earnings number to mark the turnaround in earnings trajectory especially for companies which have been trading at a premium due to domestic cycle recovery expectation, market share capture from unorganised sector and higher order book from government orders. We continue to expect high teens growth in FY19 going forward.
Q. Midcaps and smallcaps corrected steeply in the recent fall after a 50 percent rally last year. Are they now at levels that can be bought for long term or is there still room for correction?
A. Correction in mid cap and small cap stocks under our coverage is much lower than overall market. We are highly positive on domestic cyclical recovery and infrastructure spend by the government. We prefer stocks which have reasonable debt to equity ratio, completed their capex plans, high revenue visibility with increasing capacity utilization. Recent correction has definitely increased our interest in some of the mid caps which were trading at too high multiple for our comfort.
Q. What are the five sectors that you think will do well in the medium to long term?
A. We like consumer discretionary space led by auto ancillary and housing related story. Real estate we believe we start seeing demand uptick this year followed by price revision in coming years. Some of the mid cap IT companies should also do well.
Q. What are your top five picks that you believe can give healthy returns to investors over 2-3 years?Our top picks are - MOIL, Shankara Building, LG Balakrishnan, Ganesha Ecosphere and Hikal.