It is a good time for investors looking to start their fresh journey in the market along with the new government at the Centre, Siddhartha Khemka, Head – Retail research, MOFSL, said in an interview with Moneycontrol’s Kshitij Anand.
Q: What is the range you are looking at for Nifty or Sensex based on the election results? Do you think we are heading for new highs in 2019?
A: India voted decisively in favour of the incumbent BJP-led NDA government. The market reacted positively with benchmark indices touching new highs.
The S&P BSE Sensex crossed 40,000 levels for the first time and touched an intraday high of 40,124 while Nifty 50 crossed 12,000-mark to touch 12,041 intraday on Thursday.
However, some profit booking was seen on the election result day as indices had seen a decent move post the Exit Polls on Monday.
We expect the momentum in the market to sustain over the next few weeks. The verdict of a continuance of stable government with majority augurs well from reforms and policy agenda perspective.
However, we do not see a room for significant re-rating for markets from current ~12,000 levels given the underlying fair valuations and continued earnings downgrades. The Nifty50 is currently trading ~19x FY20 P/E which is above the long term averages.
Q: What are the sectors which one can bet on based on the govt. which will form the government and why?
A: The massive win by NDA brings the focus back on the BJP manifesto 2019. The manifesto was good from economists’ perspective as it didn’t include any populist schemes or unrealistic promises.
The manifesto focused to continue on the key reforms started earlier like – Housing, health, and education for all Make in India, MUDRA scheme, various incentives to farmers etc.
From the infrastructure perspective, the manifesto aims to invest Rs 100 lakh crore over the next five years. Hence, we expect sectors like corporate banks, Consumer, Cement, Capital Goods, Infra and construction to do well over the next few years.
Q: As a new government takes centre stage, should investors look at select mid & smallcaps for the next 5 years?
A: Yes, midcaps clearly offers the scope for a valuation catch-up as there is a huge divergence in their performance. In the last year, the Nifty Midcap100 Index was down by about 7 percent while the Nifty 50 index gained about 10 percent, resulting in a sharp underperformance of 17 percent from midcaps.
There have been issues like corporate governance, earnings downgrades as well as regulatory uncertainty regarding mid and smallcaps in the past which led to their underperformance.
However, given that sentiments have changed now after the election verdict, there could be good inflows into some of the mid and small cap quality names where there is room for valuation expansion.
Hence, one has to stick to quality names and look at bottoms-up opportunities in the midcaps space.
Q: What would be your advice to investors for the next 5 years who are probably starting their journey with this new government at the Center?
A: It is a good time for investors looking to start their fresh journey in the market along with the new government at the Center. The mandate is clearly in favour of the continuance of government which augurs well from reforms and policy agenda perspective.
The economy would also see the benefit of the development work carried out by the government in the last five years. Hence there is an expectation of stable growth in the economy which bodes well for the equity market.
Further, corporate earnings are likely to see a recovery in FY20 after four tepid years. However, given the current valuations, we would suggest new investors adopt a staggered investment strategy to benefit from any correction in the market.
Q: Top 5 fundamentally strong stocks which investors can look buying at for the next 5 years?
A: Here is a list of top 5 stocks which are good long term bets for the next 5 years:
ICICI Bank:
ICICI Bank has delivered a steady performance at the PPOP (Pre-Provision Operating profit) level and is showing signs of earnings normalization. With asset quality stabilizing, we expect credit cost to moderate meaningfully in FY20/21, boosting return ratios.
ICICI Bank has improved its provisioning coverage and guided for normalization in credit cost from FY20, which will drive its RoE or return on equity expansion. We have a Buy rating, with a near term target of Rs 470
Titan Company Ltd:
Jewellery growth prospects remain robust, and now Watches and even Eyewear have started contributing to growth. In addition, operating leverage arising from the rising share of SSSG in Jewellery sales (72% in FY19 over an already impressive 60% in FY18) is likely to drive healthy EBITDA margin expansion, fuelling the best-of-breed and sustained earnings growth performance for the company.
High valuations are fully deserved for a business that has perhaps the best top-line growth visibility in the large-cap FMCG/retail space (20% CAGR in Jewellery, the largest segment, in the next four years). We have a Buy rating on the stock.
UltraTech Cement:
The acquisition of Century’s cement asset and Binani has led to increasing capacity and market share in the North to 26 percent (from 19% currently) for UltraTech Cement which took its pan-India capacity market share to 25 percent (from 20% currently).
UltraTech Cement reported strong numbers in Q4 as well as in FY19. Healthy operating performance along with consistent efforts to lower costs arguers well for UltraTech.
This along with industry tailwinds should help UltraTech in improving profitability going forward. We have a buy rating with a Rs 5,190.
L&T:
The management exceeded its FY19 revenue/order inflow guidance. It is positive on ordering environment as prospective orders have got funding tied-up and will be awarded eventually.
Total prospects across the domestic and overseas market stand at Rs 9 lakh crore. With the overall strike rate at ~20 percent, it implies Rs 1.8-2 lakh crore of fresh orders.
We forecast an adjusted consolidated EPS CAGR of 25 percent over FY19-21. The core E&C EPS CAGR is estimated at 35 percent over the same period, helped by strong execution, normalization of margins and financial leverage. Consolidated RoEs should expand to 18 percent by FY21 from 14.6 percent in FY18.
Siemens Ltd:
The strong focus on products/services has helped Siemens to mitigate the slowdown in industrial capex, as it has been able to capitalize on opex-related spending. We expect the trend to continue, driving strong growth for its products business.
Any revival in capex spending can further strengthen its revenue trajectory. We expect overall revenue growth to be driven by Building Technologies, Mobility, Digital Factory, and Process Industries.
The current valuation provides comfort, given the scope of an improvement in the operating performance and the likely gradual recovery in capex.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
