MUMBAI: With the markets behaving like the proverbial see-saw the past few months, Gaurav Dua, head of research, Sharekhan by BNP Paribas, speaks to TNIE on where the opportunities lie for retail investors. Excerpts:
What is the outlook for Sensex/Nifty?
We are looking at Sensex earnings of 10 to 12 per cent in the financial year 2018-19 (FY19), and 18 to 20 per cent in FY20. Near-term the outlook is that markets are likely to trade in a wider range — Nifty in the range of 400 to 500 points — and consolidate, till the run-up to the elections next year. Though the index may not give big gains over 4 to 6 months, there are a number of stock specific opportunities, and money to be made.
We think the worst is over, with an improving macroeconomic environment. Crude outlook is benign and inflation soft. RBI will maintain status quo on interest rates at least for the next two policy meets.
Isn’t there some more uncertainty in oil markets?
Both in terms of the OPEC cartel, and the US threat, they have not behaved as expected, with Saudi sharply increasing oil output, and the US granting waivers on Iran. Also, whenever the dollar strengthens, our markets tend to underperform. The dollar index has peaked and that is why we are suddenly seeing FII inflows return. Overall, the environment has improved for emerging markets and for India.
What segments look promising now?
Certain pockets look good, retail-focused private sector banks — HDFC, IndusInd, Kotak — and corporate sector lending banks, ICICI, SBI. IT services and pharma will also be among outperformers because the demand environment is improving and they have tailwinds in terms of exchange rates. Apart from that, there will be stock specific opportunities in the consumer space.
Leadership change in ICICI, Axis — very clear signs of quality there. We are asking clients to take a longer view of one and half years because there could still be some chunky assets that could impact their earnings.
Is Pharma out of the woods?
Regulatory issues in some companies are getting cleared. For instance, Sun has got approval for Halol, and also Lupin. Pricing pressure in the US is over. Double-digit kind of pricing dip was there here. Single digit improvement is there now. Within pharma, we have some stocks like Biocon or Divis not affected by the US.
Overall valuations, and say for Sensex, how comfortable are you?
Valuations aren’t cheap anymore, but also not stretched. Last five years of the rally, Sensex earnings haven’t grown much. However, there are stocks that have more than doubled. If you kept looking at Sensex earnings you would have lost out on a huge opportunity. Retail investors need not to focus much on Sensex earnings.
(Disclaimer: Sharekhan by BNP Paribas could have either invested or advised clients to buy any of the stocks mentioned here)