The market has corrected 11 percent from its record high touched in June 2019, with economic slowdown, US-China trade war worries, geopolitical tensions and poor earnings triggering fears of a recession.
To get the economy and the earnings back on track, the government has announced several measures. The Reserve Bank of India has, so far, reduced repo rate by 110 bps to 5.4 percent and urged lenders to speed up transmission of the cut.
"The rate transmission and improving valuations are beacons of hope, but we do not see any quick recovery from the current slow trend," said global brokerage CLSA.
According to the research firm, GDP growth in FY20 was likely to be around 6 percent, far lower than the Reserve Bank of India’s growth projection. "FY20 nominal GDP growth is likely to be in single digits, lowest in 17 years," it said.
The RBI, in its August policy meet, reduced the growth forecast to 6.9 percent, from 7 percent earlier. It said the risks were tilted to the downside as domestic economic activity remained weak, with the global slowdown and escalating trade tensions posing downside risks. Private consumption, the mainstay of aggregate demand, and investment activity have remained sluggish.
The September quarter earnings could be the bottom and favourable base effect could start kicking in from the December quarter, CLSA said.
Considering the above, the brokerage said valuations were turning more favourable and it built in a 10 percent return by the Nifty over the next 12 months.
In largecaps, CLSA likes HDFC, IndusInd Bank, LIC Housing Finance, SBI, GAIL, NTPC, Motherson Sumi, Cadila Healthcare, Sun Pharma and L&T.
Its top picks are ICICI Bank, HCL Technologies, Reliance Industries, ICICI Prudential, Godrej Properties and Bharti Airtel.
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