The New Year that is to start this week is one that market watchers hope will herald not just a new year, but a new market as well. A lot of hopes are being placed on Samvat 2068 to make up for all the gains that have been lost on the markets this far. And with a few favourable government policies, as also an improving of the global situation, this may just happen. Manik K. Malakar reports…
“What we have lost in the last year, we hope to gain in the coming year,” says Clifton Desilva, Director, Altina Securities, about the prospects for the equity markets in the forthcoming year. The markets have been on the decline since the start of the previous Samvat year. “The growth that had been anticipated has been scaled down,” he explained.
It is a series of linked economic downturns that have led to the markets falling in the past year. The government in their attempt to curb inflation had taken a series of steps including a number of rate hikes, almost a dozen in a year and a half. “This affected growth, consumption, and investment,” explained Desilva. The Indian success story had been one that was noted for and driven by domestic consumption more than anything else. The government in their fight against inflation took the sheen out of this story. This in turn affected investments into the country and corporate profitability as also the markets! “Markets are a function of corporate profit,” so declining sales equals to declining profits and that equals to declining markets.
So that explains how the markets have fared to date. How would they fare going forward into the New Year? And what are the cues that would drive markets?
One bit of good news is that most experts feel that markets even if they do not shoot up would probably not decline further. “The fireworks are not expected this time in the Mahurat session seeing the macroeconomic environment both locally as well as globally,” says D. K. Aggarwal, CMD, SMC Investments and Advisors.
Technicals, however paint an interesting picture of the where the markets are headed. There is cautious hope that if a certain range is reached, then the markets could go up. According to inputs from Bonanza Portfolio, markets have recovered from a low of 4728 points in October and are currently trading around the 5140 points levels. But it could face resistance at the 5175 points levels. If that is breached and the index manages to close above it for two days then the market could rise up to the 5350 to 5400 points levels. “The Mahurat trading may reflect the above sentiment and many good companies are available at reasonable and attractive valuations,” says K Jayraman, Bonanza Portfolio.
Again from a technical point of view Sahaj Agrawal, Associate Vice President, Derivatives, Kotak Securities had earlier said, “We expect October series to end around 5,000 levels. Mahurat trading being immediately after the same and is expected to see a range of 4,900-5,000. Trade above 5,170 will confirm an uptrend in the index.”
Aggarwal of SMC opines that the equities would trade in the 4,700 to 5,400 points level in the near future. So Technicals indicate some positives that may be unravelled going forward.
And what of the domestic and global factors that could affect the markets? “One thing is for sure that there is no decoupling theory in the real world and India’s integration with the world economy in terms of trade has grown in the last decade or so,” said Aggarwal. Thus western woes will hit Indian equities, a trend that Aggarwal expects to continue for six months or more.
Now while analysts are divided about the timeframe for a recovery they do feel a recovery will happen for various reasons.
‘Most of the negatives have been factored into the markets,” says Desilva. He notes that the RBI could not raise rates ad infinitum and that the next policy would probably see the last rate hike. Also commodity prices especially crude have been coming off and this would help India, especially in containing inflation front.
Other market watchers expect inflation as also interest rates to peak in six months time and the situation in Europe and the US would also, hopefully cool off by then. “I expect the uncertainty to settle down by then and hopefully we will see much improvement in the confidence of the investoring fraternity,” said Aggarwal.
So is this the time for the retail investor to invest? And if so where? “It is impossible, for an investor, to catch the bottom,” says Desilva. He feels that a SIP would be good for the small investor. In the Oil & Gas space he is positive on ONGC, Cairn and RIL. In the banking sector SBI, ICICI, Axis and Yes Bank look good. Tata Steel and SAIL are good in the steel segment. From the auto sector Maruti, Bajaj, M&M and Tata Motors are nice. And in the IT segment Infosys, TCS and HCL Tech are all Desilva’s recommendations.
“The banking sector particularly PSU banks have corrected substantially from their peaks. However, the bottoming out is yet to happen. Therefore it is advisable to buy PSU banks when the Nifty is at lower range i.e. at 4800 levels. Canara Bank and Oriental Bank look attractive by valuation. Also Axis bank in private banks is an excellent buy for the next 12 to 18 months. These shares are likely to give a return of more than 50% during this period,” said Jayraman of Bonanza.
The “Oil and gas sector could be avoided except GAIL which is a defensive bet for the next 12 months,” he continued. Also Infra and Reality stocks have substantially corrected from their peaks and most of the bad news is already discounted in today’s price. DLF is showing support @ 190 levels. Now DLF is trading at 240 levels. Therefore on a correction DLF can be bought between Rs 212-215. “FMCG stocks have already performed well and may be avoided for the time being,” Jayraman continued. “In the Pharma sector, Biocon is attractive at current levels and could move up in the near future. Metal and Auto stocks may be avoided for the near future,” Jayraman advised.
“The sectors that are looking good at this point of time are healthcare, two wheelers FMCG,” said D. K. Aggarwal of SMC. “Concentrate on the leaders and avoid the laggards,” Altina’s Desilva advised.