Aditya Birla Money's report on Diwali Top Picks - 2015Nifty has delivered returns of about 2.2% since start of SAMVAT 2071 (i.e. since Oct 2014). While India has underperformed most large global markets over this period, it has to be looked in context. First the performance. While S&P 500 has returned ~10%, China has been the best performing market with more than 40% returns. Major European markets too have delivered returns of ~20%, with most Asian markets giving returns of between 5% to 10%. While optically India seemed to have underperformed, it has come on the back of significantly large out performance in the preceding year due to repricing of Indian equity markets after the 2014 general elections.
Sectorally, metals, PSUs and energy were the worst performing sectors with returns of -35%, -13% and -12% respectively. On the flip side, pharma was the best performing sector followed by FMCG and IT, with returns of 26%, 9% and 7% in that order.
On global macro front, 2015 saw flat global growth at 3.3%, as sharp slowdown in China was somewhat made up by growth in US and Europe. Most emerging markets (Brazil, Russia, China, SA, Turkey, etc.) saw sharp slowdown in economic growth, as weakening global growth put pressure on commodity prices (oil, metals, etc.), which in turn hurt most of the commodity producing nations (Brazil, Argentina, South Africa, Russia, ME, etc.) Subdued global growth also led to commodity prices (particularly industrial commodities) crashing by over 50% over the past year.
In medium to long term, to bring our economy back on track, government is likely to take the following steps 1) ease bureaucratic and legislative hurdles for doing business in India, thereby improving India’s ranking in the world in terms of ease of doing business, 2) implement path breaking power discom refroms, which will go a long way in improving the entire chain of power related stress in the corporate balance sheets and PSU Banking space 3) push infrastructure growth by scaling up road contract awards, kick starting smart city projects and also implement Swachh Bharat Abhiyaan project 4) attempt implementation of GST in FY17 5) focus on executive decision making in the wake of legislative dead-lock, amongst other reforms which the govt may undertake from time to time.
In the near term though, global markets (and Indian markets too) will continue to see volatility largely on account of two reasons 1) global growth slowing as the economic recovery of post GFC era seems to be maturing 2) World’s largest central bank, i.e., the US Fed is likely to embark on a rate tightening cycle, although it is likely to be extremely moderate and slow as compared to previous rate hike cycles of the past three decades.
In a nutshell, we believe that, best is yet to come for Indian economy and India’s GDP is likely to grow at 7.5% and 7.8% in FY16E and FY17E respectively. Corporate earnings will reflect the same and Nifty’s earning is likely to grow at CAGR of 16% - 19% during FY15-FY18E period. On valuation front, Nifty is trading at P/E of 17.2x, 14.4x and 12.3x of FY16E, FY17E and FY18E earnings respectively. In short term, market will be driven by global factors, however, in medium to long term, we believe, Indian equity market is in midst of structural bull run and hence, the trajectory is likely to remain upwards.
Nifty has corrected ~15% from its peak, whereas some quality companies have corrected by 25-30%. Investors should use this auspicious occasion of Diwali to encash on this opportunity and build portfolio for SAMVAT 2072.
At the start of the year, we had recommended a basket of 15 stocks which have given an average return of ~42% as against lower / negative returns given by most benchmark indices.
For SAMVAT 2072, We recommend a portfolio of 15 quality businesses/companies, which are mix of cyclicals (like auto, banking etc), new emerging sectors (like defense, media etc) and consumption with strong earnings growth momentum. We expect these stocks to deliver returns in the range of 20-25% over next 6-12 months. Stocks: Aegis Logistics, Apollo Hospital, Bajaj Finance, Britannia, Dalmia Bharat, Dish TV, Eicher Motor, Indusind Bank, Shasun Pharm, Va Tech Wabag ...For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their 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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