Having hit a high of 25,725 earlier this month following the euphoria around the election results, the benchmark BSE Sensex at the Bombay Stock Exchange retracted by 2.4 per cent over the last fortnight to close at 25,099 on Friday, as the markets await Budget announcements on the domestic front and unfolding of the geopolitical concerns surrounding Iraq. As the issues unravel, The Indian Express asked five leading broking houses in the country to demystify the current market situation and provide their advisory to retail investors:
The imminent Budget would provide the first glimpse into the policy formation of the new government. Markets would continue to have high expectations but once the initial euphoria settles down, critical evaluation of the government’s performance may lead to volatility in markets. In addition, the risk of below normal monsoon may not only dash the hope of rate cuts, but also delay an economic revival and recovery in cyclicals.
We continue to be bullish on quasi-defensive sectors like automobiles, cement and banks with healthy balance sheets. Moreover, we upgrade capital goods, power, infrastructure, metals and oil & gas to overweight on a clearer policy outlook.
With improving sentiments, most sectors that were being avoided have started to attract investors in search of higher alpha. We are underweight on defensive sectors like FMCG, pharma and IT, which would give way to high beta, capital intensive sectors.
Head – Research, ICICIdirect.com
Markets have been rising since the last week of polling and picked up after the outcome. Over the past two weeks, however, the markets have been digesting gains and waiting for the big event — the Union Budget. Meanwhile, FII inflows have also cooled-off partly reflecting the Ukraine/Iraq related fallout and partly due to valuation concerns.
Near term concerns for the markets include strong YTD out-performance (20 per cent rise since January), monsoon related worries and its impact on GDP and inflation, rising crude prices, high and stubborn inflation and possible disappointment over the outcome of Budget.
The Prime Minister has warned of “tough decisions” over the next couple of years in a bid to improve the country’s financial health. While people at large may be impacted by them in the short term, the discerning investors (especially the foreigners) would much appreciate them especially if they are not rolled back often.
PSU, oil & gas, metals, capital goods and a broad range of mid-cap and small cap stocks could perform well going forward. Retail investors who hold stocks or have invested over the last couple of months can continue to hold them and also look to increase their exposure over coming weeks.
On the other hand, investors who have not had a good experience in the past in direct equity or are first time investors could look at investing in ETF (Nifty, Midcap, Bank) or Equity Mutual Funds. Risk averse investors could invest in hybrid or balance funds and benefit out of both equity and debt appreciation. Selective exposure to primary markets may also be taken.
Head — Retail Research
The market closed almost flat on a weekly basis but remained choppy during the week between the broader range of 7,440 and 7,595. These levels are going to act as major trend decider levels in the coming weeks. Above 7,595, we can expect Nifty to reach 7,700 but in case it breaks 7,440 then it may fall to 7,300 levels.
However, our broader view is that the markets are into strong hands and major dips can be seen as an opportunity for long term investors. Till the market doesn’t break 7,200 level, it will trade strong. We like banks, capital goods and infra space with a medium to long term view. We like SBI, BOB, ICICI Bank, L&T, Voltas, Siemens and ABB.
Metal and cement stocks are into sideways consolidation phase but eventually they are going to do well and our preferred picks are Sesa Sterlite and TATA Steel. PSU stocks are still undervalued and if the government takes specific stance then they can be multi baggers. HPCL, BPCL and ONGC are potential investment opportunities.
For retail investors and traders, our advice is to stick to investments and buy into secondary markets on a regular basis. Select one or two frontline index heavy weight stocks and remain invested in them. Buying at each dip is advisable. Even buying into pharma and technology stocks is advisable due to their defensive nature and Sun Pharma, Lupin, Biocon, Infosys and Tech Mahindra can be looked into.
Senior VP — Technical Research
Geojit BNP Paribas
Indian equity markets are moving up on high expectation on reform-oriented budget and Nifty is likely to move above 7,800-8,000 levels in the short-term and in the medium term it can even move up towards 10,000-10,500 levels. Foreign Institutional Investors (FII) are optimistic on India’s economic growth despite poor monsoon. A 5 per cent deficit in rainfall could have negative impact on our economy in a bigger way but that is not affecting FII inflow as they have been net buyers to the tune of Rs 45,803.10 crore. Also, recent capital market reforms by the regulators will attract new international investors to the domestic financial market.
While Nifty has surpassed the January 2008 high of 6,357 and made a high at 7,700, BSE Mid Cap and Small Cap Index are still trailing behind the previous highs recorded on January 2008 at 10,245 and 14,239 respectively. There are wide varieties of stocks in these sectors with high growth potential.
The recent tensions in Iraq kept the crude oil prices at high is a cause of concern, which in fact can act as a catalyst to higher inflation and higher current account deficit.
IT and Pharma sector stocks are expected to outperform in the near term because these sector stocks have already completed their technical correction. Banking and metal stocks trading at significantly lower valuations can offer investors decent return in the short to medium term but avoid penny stocks.
Head – Research
Motilal Oswal Securities
Markets are likely to take some breather on the back of monsoon playing spoilsport and crude oil spike due to Iraq crisis. Yields on G-Sec have also hardened on the back of inflation concerns.
However, the government is taking a lot of structural steps to address inflation like repealing APMC act, moderating MSP increases, and releasing food grain stocks. A lot of initiatives on infrastructure such as higher target for building of roads, removing fuel bottlenecks for power sector and permissions for stuck power projects. These steps will lead to investment led growth in GDP. Hence, any short-term correction is to be bought into aggressively.
Good quality small and midcaps will also present an excellent opportunity to create wealth in the medium to long term. Structural themes, where investors can participate over the next 2-3 years are housing related businesses like paints, housing finance, accessories, cement etc. Deep cyclicals such as commercial vehicles, PSU banks and infra will present excellent opportunities for investors in coming months and years.
There will be volatility in the short term but investors who take the call now and invest in good companies with medium to long term view will be rewarded handsomely over the next 2-3 years.
VP and Head of Strategy