Prasanth Prabhakaran, Joint Managing Director and CEO, YES Securities, says the rally in large-cap stocks could continue and the best case scenario for Nifty for 2020 is that it could hit 12,915. There could be declines too, he cautions. Excerpts:

 

You think 2020 is the right time to buy small- and mid-cap stocks?

Several factors have contributed to their underperformance. It includes higher-than-expected earnings, corporate governance issues and mutual fund portfolio re-jig. Moreover, regulatory changes including enhanced tax compliance norms have made many businesses unviable. Also, economic slowdown is a sentimental cause.

The broader market is in a consolidation phase that began in 2018 and most likely may continue till mid-2020. YES Securities had a one-year target for Nifty at 12,330. The best case target scenario is 12,915. Chances of steep declines too cannot be ruled out.

Global central banks are all easing interest rates. How will this liquidity help the stock markets?

Liquidity-led global monetary policies has seen nearly ₹1-lakh crore worth of inflows coming into India’s market in 2019. Foreign portfolio investors (FPIs) have been aggressive buyers but most money has gone into top-rung stocks only. These include HDFC Bank, Reliance Industries, Infosys, TCS, HDFC, ITC and Kotak Mahindra Bank, which has propelled Nifty to record levels. We expect this to continue in 2020 as well. Both domestic and FPI flows will be largely absorbed by index heavyweight stocks.

Are Is there high expectations from the Union Budget this time?

The country’s economy is trying to stand on its feet and get back to its earlier growth momentum. Another two quarters could be tough as bank credit growth is not pushing. Lending is not picking up as capital requirement of Indian businesses has dried up as the sentiment is more towards preservation rather than growth.

Risk aversion is playing out. In such a scenario, major expectation from the Budget is that it will spur government expenditure to balance out lack of private capex. Divestment of government companies and a balance on fiscal deficit could be the key areas which would find focus in the Budget, along with other areas.

A 50 per cent fall in bank NPAs has been a positive surprise. Is it a major sentiment booster?

It is a welcome sign. If the NPA (non-performing asset) figures continue to be reined in, along with quicker resolution of NCLT cases, we will see a recovery in bank credit growth which is languishing at a multi-decade low. This is crucial to drive both public and private capex.

What are the key sectors and stocks to focus on?

We remain overweight on banking and insurance industries. Reliance Industries will benefit from rising EBITDA in consumer-facing businesses and rising ROCE over the next two years; along with value unlocking of various businesses, where investments have happened over the last decade or so.

UltraTech is the price leader in cement and will benefit disproportionately from industry consolidation. HDFC Bank will continue to gain market share from the slowdown in credit from competitors, both in the public sector banks and NBFC space.

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