There is a strong chance of Nifty surpassing Mount 12K if earnings improve in FY19

The markets are likely to remain volatile during the next 12 months. Having said that, there is a bright chance that Nifty could go beyond 12,000-levels if there is a strong earnings recovery, Raghvendra Nath, Managing Director, Ladderup Wealth Management said in an exclusive interview with Moneycontrol’s Kshitij Anand.

The year FY18 pared most of the gains thanks to steep correction seen in the month of February and March. How is FY19 likely to pan out for investors – will it be a year which belongs to the bulls or bears will keep gains in check?

Indeed, the global volatility has pared most of the gains. In India, too, the valuations were running beyond reasonable comfort levels and a correction was imminent.

The FY 18-19 is going to be an eventful year again. There are multiple global events that are likely to impact markets. Also, there are multiple state elections that would culminate into the Lok Sabha elections towards the end of the financial year.

Raghvendra Nath

Ladderup Wealth Management

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Trade policies, US Fed rates, Oil, North Korea Talks, Geopolitics of Middle East etc. would keep the global markets volatile.

In India, the course of the markets would be determined by the probability of a second term for Narendra Modi as well as the improvements in earnings growth story for India Inc.

What is your index target for the financial year 2019? Do you think the index will be able to reclaim 12,000 on Nifty and Sensex could rise above its previous record high of 36,443?

The markets are likely to remain volatile during the next 12 months. Having said that, there is a bright chance that markets go beyond 12,000 levels if there is a strong earnings recovery.

Do you see Modi 2.0 as we inch closer to national elections in the year 2019?

There is a good probability that NDA may get a second term. There is a possibility that BJP may not get a simple majority on its own, but a coalition government led by BJP is a very likely outcome. For the markets it could be a big relief as it would mean continuity of policy and reforms.

Mid and Smallcaps which hogged the limelight in FY18, do you think the trend will continue in the next financial year? If yes, why?

In any classic bull cycle, the small caps and midcaps generally witness stretched valuations. Most of these stocks have small market capitalisation and very little floating stock.

With rising investor interest and trading volumes, the prices of such stock therefore move up sharply, which further ignites speculative interests.

In the current market reaction since the last two months, most speculators in small and midcaps would have suffered serious losses. I would therefore presume, that even if the markets were to go up from here, the small and midcaps would show reasonable growth unlike the last 12 months.

There is a big hue and cry about crude. Do you think that the black gold could trade above USD 75-80/bbl?

The crude prices are more linked to agreement between the oil producing nations to cut back production than the demand for oil.

Globally, the demand for oil is decelerating, so any further price movements in oil would only be driven by further production cuts.

There is no news as of now that suggests of any such move. I would therefore hazard a guess that the oil prices would be fairly range bound.

What should be the portfolio composition of investors in the coming financial year assuming he is in the age bracket of 35-40 years?

One cannot change one’s asset allocation year on year. For a young person with limited short term liabilities, at least 60 percent of the money should be invested in equities at all times.

There is no point in timing the equity markets as it just wouldn’t matter in the long term. In the long term, the wealth creation would depend on the quality of stocks chosen and the underlying profit growth of those stocks.

The stock prices and valuations both align to the Earning growth in long term. If the growth in earnings is poor, the valuations would automatically correct. Therefore, there is no point speculating about the prices in the short term.

Do you think earnings is likely to bounce back in double digits in FY19?

The PSU banking sector has been a big drag on the earnings in the last 2-3 years. The spate of NPAs and now frauds and scams just doesn’t seem to end.

Let’s hope that there are no more cadavers hidden in the PSU Banks cupboards. If so, the earnings growth should most likely be in the high teens.

Some analyst was telling in an interview that India is now part of Expensive 4 in terms of valuations. Do you agree with the statement? Do you FIIs flows coming down in light of constant rate hikes by the US Fed and rising US bond yields?

Yes the Indian valuations had become relatively expensive. If the expected earnings growth that analysts are predicting turns true, the valuations are sustainable.

FIIs now hold almost one-fourth of the Indian market capitalization. So FII flows would not get impeded by rate hikes or bond yields. We have seen it in the past too.

People were extremely concerned when the quantitative easing was being tapered by Fed but we saw that it turned out to be just a damp squib.

The Fed hikes are well planned and well spread out so I do not think FII flows would depend on that. The extent of flows would however depend on the relative attraction of India in the Emerging markets pack.

How will fears of trade wars likely to play out for Indian markets in FY19? Which sectors are likely to see the worst of it?

First of all there is very little likelihood that trade wars may erupt. There is just too much at stake for everyone. Political posturing is one thing, but such extreme decisions can create Economic imbalances that can last for decades.

So, while the markets are justifiably reacting and adjusting to the threats that Trump administration is issuing, we should not be overly concerned.

In any case, India has very little exports to US except software services, pharmaceuticals and jewellery. A change in market sentiment globally would also impact India as the foreign flows would become volatile.