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Even though the Indian economy is forecast to witness a slight improvement in macro-economic fundamentals, namely crude oil prices, inflation and GST revenues (mostly expected in the second half), the equity market is likely to continue to be on a bumpy road in the medium term. This is mainly due to improvement in global economic outlook and rising US bond yields followed by domestic factors such as imposition of long-term capital gains tax and uncertainty over improvement in corporate performance.
Kotak Institutional Equities still finds valuation of the Indian market rich and the quality of earnings growth still poor. “The pressure on equity multiples is likely to continue if the current macro-economic conditions sustain, even without further deterioration. It is imperative that earnings do not disappoint in case India’s macro continues to be subdued or deteriorates further.
“A large portion of the incremental profits of the Nifty 50 Index and KIE Universe Coverage are coming from sectors such as PSU banks, metals & mining, oil & gas and utilities, which should logically trade at lower multiples (10-12X given the low return on equity of the businesses and/or high profitability in the case of commodities),” it said.
Benchmark index Nifty 50 is down 5.3 per cent from its all-time high of 11,171.55 on January 29 and is flat on year-to-date basis.
Every dip should be seen as a buying opportunity by long-term investors, according to experts.
IDFC Securities has maintained its Nifty target for March 2018 at 11,300. “The current dip seems a healthy correction and makes us re-emphasise buying on such dips,” it said.
While mid- and small-cap stocks are prone to corrections amid any sell-off, risk-averse investors are better off focussing on large-caps stocks for now.
Reliance Industries, Maruti Suzuki and Motherson Sumi Systems are the common top picks among large-cap stocks recommended by brokerages such as BNP Paribas, IDFC Securities and Kotak Institutional Equities. These stocks have gained 46-76 per cent in the last one year. ICICI Bank, HPCL, Hindalco and HDFC Bank are some more picks of brokerages. Among the mid-caps, stocks such as Kajaria Ceramics, SpiceJet, Ashoka Buildcon, Greenply Industries, Ashok Leyland, Bharat Electronics and Aurobindo Pharma are the preferred picks. Except Aurobindo (down 14 per cent), the above stocks have risen 4-115 per cent.
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