Despite events/factors, such as State elections, likely populist Budget, US Fed rate hikes, economic revival in developed economies and current domestic macro concerns including economic slowdown, high inflation and weak earnings, Sharekhan is positive on the Indian equity markets for the new year.

This is because data points such as automobile sales, inland freight traffic, airlines passenger traffic, hotel occupancy rates and electricity generation indicate that the current slowdown is temporary. Moreover, the government’s measures such as recapitalisation of public sector banksand the ₹7 lakh-crore road construction plan will help boost the economy. Also, the rural economy is looking up, thanks to normal monsoons and rise in wage rates.

All these plus the fading impact of demonetisation and GST are expected to lead to revival in corporate earnings, going ahead, Sharekhan said. BSE Sensex stocks of automobiles, banks and consumer sectors will aid earnings recovery next financial year.

However, there is unlikely to be any further expansion in the price-to-earnings multiples as happened in 2017. This means that gains in benchmark indices, going ahead, will be in line with earnings growth, which is expected to revive meaningfully, according to Sharekhan.

Hunky-dory outlook

Overall, everything looks hunky-dory for the Indian economy as well as the markets. For 2018, Sharekhan recommends four themes, namely, consumption, financialisation, government capex and formalisation.

It is bullish on sectors, such as insurance, mutual funds, private banks, non-banking finance companies, housing finance companies, automobiles, auto ancillary, footwear, building products, consumer electrical, paints, cement, steel, staples and select consumer discretionary.

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