Hela September 15, 2019


The consistent plunge in domestic equities over the last one and a half years has had a marked negative impact on individual equity portfolios. As one can sense from recent speeches by the Finance Minister, the government is actively taking corrective measures to bring stability and infuse positivity in the economy.

On the domestic front, the equity market now has several tailwinds going for it:
• Positive government reforms expected in near future
• Considerable drop in crude oil prices from the top
• Normal to positive monsoon
• A stable government with absolute majority.
• Reduction in interest rates.
• Earnings expected to bottom out by Q2 and start uptrend from second half

And among the possible challenges to any upside for the equity market, one big risk comes from possible intensification of the global trade war and back home if there is a significant drop in second quarter corporate earnings.

That said, any sign of renewed strength in the economy from the government’s healing touch should spell opportunity for investors to invest and increase exposure to domestic equities. While Nifty itself should see marked upside from its current level, the upside potential is very high also in the beaten-down midcap and smallcap stocks, where many quality names are down in the dumps following the bear hammering.

So where do these quality stocks exist
Banking: Valuations remain rich in this pocket. But, we expect private sector banks to outperform their public sector counterparts in terms of earnings growth going forward. Merger of public sector banks may require merged entities time to start performing to their potential.

Auto: Although the fall in auto share prices has made their valuations attractive, but earnings may still take some time to stabilise. We are positive on the CV segment, as we believe this pocket will revive as and when infrastructure activities start to pick up, which is also a focus area for the government.

Infrastructure: As the government has clearly stated in its vision to spend Rs 100 lakh crore on infrastructure in next five years, this will throw up considerable opportunities for growth in construction, infrastructure and capital goods sectors.