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Last Updated : May 28, 2019 12:54 PM IST | Source: Moneycontrol.com

We increased our Nifty target to 12,700 after elections, Q4 earnings: Geojit

Job creation, exports, and stability in the financial and tax system will be the key areas of the new government. Higher foreign inflows will push the market to the upside in the coming period.

 
 
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We had a one-year target of 12,000 for Nifty 50 on March 31 which we are increasing to 12,700 after the Q4 results and election outcome, Vinod Nair, Head of Research at Geojit Financial Services, tells Moneycontrol's Kshitij Anand.

Edited excerpts:

Q: What is the range you are looking at for Nifty or Sensex based on the election results? 

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A: We had a one-year target of 12,000 for Nifty50 on March 31, which we are increasing to 12,700, post the Q4 results and election outcome. Q4 result started on a low note due to weak initial results from the financial sector. But, it is understood that a good portion of these issues are one-time in nature and growth will propel from H2FY20.

At the same time, the outlook has improved for FY20 and we are maintaining positive earnings growth for FY20 and FY21 though few sectors like telecom, FMCG, metals and energy have muted expectations.

We are increasing the P/E valuation from 17x to 17.5x given the stability and progressive outlook post the election outcome. Our Nifty EPS forecast stands at Rs 616 and Rs 708 for FY20 and FY21 with 17.5 percent and 15 percent growth, respectively.

Q: What are the sectors which one can bet on based on who will form the government and why?

A: With the growth agenda, the sectors to do well are financial, industrial, infrastructure and cement. The economy is expected to do better from H2FY20 onwards leading to a better outlook and earnings growth.

Job creation, exports, and stability in the financial and tax system will be the key areas of the new government. Higher foreign inflows will push the market to the upside in the coming period.

Q: As a new government takes centre-stage, should investors look at select mid & small-caps for the next five years?

A: There was some concern in the market abut the final effect of the election on the future outlook. This factor has concluded with an overwhelming result, the risk-taking ability has come back and since the valuation of mid & small-caps is below the long-term averages, the attractiveness is irresistible, and will outperform well.

The economy is expected to pick-up from H2FY20 onwards and the market has high expectation on the upcoming final budget.

Broadly, the overall mid and small-caps are likely to outperform the market while select bottom-up story and sectors like finance, infrastructure, chemicals, cement and industry-oriented ones can do better.

Q: What would be your advice to investors for the next five years who are probably starting their journey with this new government at the Centre?

A: A large portion of the domestic concerns are likely to be addressed by the new government and global headwinds are under progress. We expect the market to be positive in the second half of the year with better access and availability of credit at a lower cost. RBI and global central banks are working towards supporting the economy at a lower interest rate.

We advise retail investors to increase their exposure to equity with high mix towards mid and small-caps, in a range of 20-40 percent as per your risk taking appetite, large-cap can underperform due to being valued above the long-term valuation.

Q: What are five fundamentally strong stocks that investors can buy for the next five years?

A: Here is a list of five stocks that investors buy for the next five years:

Aarti Industries:

Q4FY19 Revenue & PAT grew by robust 18 percent and 47 percent on a YoY basis led by broad-based growth across segments. EBITDA grew by 31 percent YoY, whereas EBITDA margin improved by 200bps YoY to 19.5 percent due to high margin product mix.

We remain optimistic about its long term growth story, given the capacity additions, the launch of new products, and robust offtake from speciality and pharma segments. The earnings outlook continues to be robust at 26 percent CAGR over FY19E-21E.

Bharat Electronics 

Strong order backlog of Rs 48,000 crore (4.6x FY18 sales) provides clear visibility for the next three years. The stock is currently trading at 1-year fwd P/E of 16x, which is below the five-year average.

Given BEL’s technological and execution capabilities, higher defence spending and government focus on indigenous procurement we remain positive on BEL with the buy rating.

Interglobe Aviation:

Among the domestic players, Indigo is best positioned to benefit from rapid growth in the structural expansion of the Indian aviation market given its unique fleet strategy, cost competitiveness, aggressive capacity addition, and visionary management.

Going ahead company will focus on expanding its international operations and deeper penetration in Tier II and Tier III cities. We remain constructive on Indigo gave its market leadership position, aggressive capacity addition, and strong balance sheet.

NCC

Road and construction sectors are likely to benefit due to the continuation of government at the Centre and their renewed focus on infrastructure development, which will result in up gradation in earnings.

NCC’s order book remains strong and execution is likely to pick up as ~90 percent of order book has received regulatory clearances.

We expect order book to grow at a CAGR of 19 percent over FY18-FY21E. The stock is currently trading at 1yr fwd P/E of 11x, which is well below the five-year average.

Escorts:

Development over monsoon, especially in the southern market and Government’s subsidy towards farm mechanisation will be a driving factor for volume growth in FY20.

However, 1 percent improvement in market share from the south and west region owing to new product launches and marketing strategy will add incremental growth. We expect EL to register a revenue growth of 10 percent over FY19-21E and to outperform 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.

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First Published on May 28, 2019 12:54 pm
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