Motilal Oswal’s Gautam Duggad sees market trading in range in CY18

After stellar 29-30 percent returns in 2017, the market has been subdued since the turn of the year, and Gautam Duggad, Head Research at Motilal Oswal Financial Services, believes the emerging trend of the market remaining range-bound could continue for the rest of the calendar year 2018.

Duggad feels that market will be rangebound on the back of macro concerns such as rising crude oil prices and depreciating rupee against the dollar.

From January 1, Indian unit has depreciated nearly 6 percent against a dollar.

He believes that market movement for rest of 2018 will be characterised by lot of political volatility given that there are a slew of elections lined leading up to general elections in 2019.

Excerpts:

Do you think market is at a juncture where it will start consolidating or do you see a further correction in the market?

Market is going to remain range-bound this year because of couple of concerns that have emerged on the macro front whether it is crude oil prices or currency and at the same time valuations are not cheap at index level. Secondly, this year will be characterised by lot of political volatility given that it is a busy elections year leading up to general elections in 2019. On the index level you will not have much upside but we can see lot of sectoral upside and stock specific movements.

What is your assessment of the recently ended quarterly corporate earnings season? Which ones emerged winners and what is your outlook?The 4QFY18 earnings season exhibited a mixed picture, with a healthy performance from the consumption and commodity oriented sectors marred by a drag from corporate banks and capital Goods. Meanwhile, the hopes for a long-awaited earnings recovery in FY19 stay intact.

Global cyclicals single-handedly drove the quarterly performance, led by metals and OMCs. Within domestic cyclicals, auto, capital goods, private banks and PSU banks posted weaker-than-expected PAT growth. We expect Nifty EPS to grow 27.4 percent to in FY19 and 19.6% to in FY20.

Which are the sectors that will hog the limelight this year?

We have very selective approach. We like sectors where there is earnings visibility, where there is good macro momentum. We like sectors like private banks, NBFCs, consumer staples and discretionary, auto and select names in IT and cement sectors where we are overweight. These are the sectors which offer good earnings visibility for next couple of years. Some of the companies are the companies that are getting market share from unorganised to organised. Clearly, the rural consumption theme which is picking up more. This theme has picked up very well. So, these are 4-5 sectors where we think money can still be made.

Which are the sectors that you are underweight on?

Right now we are slightly underweight on sectors like telecom, pharmaceuticals, PSU banks. We are also underweight on capital good where we do not see immediate capex revival. Even sectors like metals which has made lot of money, we will be very cautious

How bigger concern is rupee depreciation against the dollar?

Rupee movement will be dependent on crude oil prices and on how the overall macro situation shapes up. We have had a very strong currency on a relative basis in the last couple of years. This year we have seen some depreciation led by crude oil prices, hardening, inflation going up and hardening bond yields. So, that equation to an extent had deteriorated. However, we do not see any runaway depreciation in rupee given that our inflation is still under control and we are getting decent capital inflows even now.

How are FIIs looking at India at this point and time?

May has been negative as far as FII flows were concerned but domestic flows have made up for that. Domestic flows have been more than 3-5 times. From FII perspective given that bond yields are hardening and rupee is depreciating it is incrementally negative for them to bring in more money in to markets like India or other emerging markets. So, that headwind will stay but given that there are sectors and companies where there are bottom up opportunities, we can see selectively money being deployed in those stocks and sectors.

Mutual funds have been net buyers of shares so far, do you see this trend continuing?We are seeing continuation of financialisation of savings in India which started after demonetisation which is still continuing. Rest of the asset classes like fixed deposits, real estate, gold which has been traditional favorites of retail investors in India haven’t done much over the last 3 years. So we have seen large cap indices have done phenomenally well, mid caps have also done well. So, retail investors have tested success through SIP route and that SIP book continues to grow and remains very strong. We believe that continued financialisation of assets will ensure that domestic flows remain very solid this year.