Gautam Duggad, Head of Research, Motilal Oswal Institutional Equities, feels the market can remain rangebound in the near term till earnings catch up with valuations. The brokerage continues to prefer largecaps as against midcaps and would suggest systematic and staggered buying to partake in the earnings rebound.
He is betting on ICICI Bank, Titan Company, Maruti Suzuki, Hindalco Industries and HDFC after the April-June earnings season. Duggad is currently bearish on Idea Cellular, Bharat Heavy Electricals and Tata Power.
Edited excerpts:
Q: Should investors be excited that markets are hitting record highs or remain cautious over deepening economic crisis in Turkey?
A: We do not think it’s a material concern for long term investors. It can definitely induce some short term volatility, given the context of foreign institutional capital flows and some implications for the currency. However, the Indian economy is far more dependent on domestic consumption than on exports. To that extent, it is relatively more resilient. Cyclical recovery in the Indian economy is gaining strength in our view.
Q: The Turkish lira is in a free fall against the dollar in 2018 so far. The big concerns is the foreign currency debt it owes to Spanish banks and French, UK, US and Japanese lenders? This looks like a perfect recipe of a contagion and would impact countries across the globe. Do you agree? A: It seems too early to worry about the contagion effect. The total exposure of the global banking system towards Turkey is about $200 billion. Spanish banks are most exposed to Turkey, but there is no serious exposure from any other country. The amount doesn’t seem high enough to create jitters at a global level. If the situation get serious from here on, we hope the European Central Bank (ECB) will do what’s necessary to contain the contagion from spreading.
Q: What is your call on the rupee for the next 6 months? Are we heading above Rs 71/$? A: We have always believed that there was a depreciating bias in the rupee. However, the recent sharp movement towards Rs 70 per dollar has been entirely on account of global tensions, which are highly fickle in nature and uncertain. Probability of the rupee going to 71/$, based on global events, is as high as its probability of returning to 69/$. It is too early to incorporate recent movements into our rupee forecasting model.
Q: Was the June quarter earnings according to your estimates?
A: It was below estimates. However, Nifty earnings growth was in line if one adjusts for the drag from corporate banks. The narrative has not changed much in the last few quarters. Earnings continue to be led by a mix of private financials (private retail banks and non-banking financial companies), consumption, metals and oil & gas companies, while automobile, cement, corporate banks dragged.
Q: Any five stocks which are a strong buy after June quarter results? A) ICICI Bank, Titan Company, Maruti Suzuki, Hindalco Industries and HDFC.
Q: Which stocks according to you should investors reconsider investing in or if they have in their portfolio then exit or book profits? A: Idea Cellular, Bharat Heavy Electricals and Tata Power.
Q: Given that the market is trading at record highs, should investors wait for dips to invest or book profits on every rise?
A) The market is interestingly poised and hitting fresh highs despite global volatility as well as local currency depreciation. Clearly, the earnings cycle seems to be turning around. While valuations are not offering any room for error, it alone can’t pull down the market given the context of an earnings turnaround.
It can remain rangebound in the near term till earnings catch up with valuations. We continue to prefer largecaps versus midcaps and would suggest systematic and staggered buying to partake in the earnings rebound.
Q: Is there scope for correction amid global volatility as well as the heavy election season?
A: Yes. Volatility will be elevated in our view. Given the rich valuations that the market is trading at, the scope for correction always exists.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are his own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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